Underwriting vehicle intended to boost reinsurance business for the insurer

Lloyd’s insurer Novae is thought to be considering forming a ‘sidecar’ vehicle as part of its strategy to grow its reinsurance operation, Novae Re.

Sidecars are essentially equity-funded underwriting vehicles that act as a reinsurer of the sponsoring company, allowing it to write more business when opportunities arise and pull back when they pass.

It is thought that Novae is expecting to see opportunities to write more catastrophe reinsurance, following a recalibration of catastrophe models next year.

Observers suggest that, as Novae has recently returned surplus capital to shareholders, it may need to look at alternative funding sources as part of its reinsurance growth plans.

Novae declined to comment.

A number of Lloyd’s insurers have taken advantage of sidecar structures in recent years. Hiscox’s Panther Re was established in 2006 with funding from US private equity firm WR Ross. A more recent example is Beazley’s Syndicate 6107, established in 2009 to write reinsurance.

But some attempts to launch sidecars in 2010 have failed. Catlin shelved plans to float its sidecar reinsurer, Long Bay Re, on the London Stock Exchange’s AIM in June. The initial public offering would have raised £103.9m.