Syncro starts side car-style arrangement with Lloyd’s

Syncro Limited, a Bermuda-based company, is establishing a Bermuda sidecar-like reinsurance arrangement to allow Lloyd’s managing agencies to increase their underwriting access to additional capacity at any point in the underwriting year.
Structurally, the arrangement is similar to a side car arrangement. In a side car arrangement, a reinsurer or insurer cedes premiums associated with a book of business to an investment group known as a “side car.”
Insurers and reinsurers will only cede their book of business if the group’s investors place sufficient funds in the side car to ensure all claims, if they arise, can be paid. Side cars have started to gain popularity as an alternative way to finance cat claims.
Syncro’s arrangement with Lloyds will offer a number of significant advantages that some side car arrangements do not offer, according to a posting by international law firm Clyde & Co.
The Lloyd’s arrangement, says Clyde & Co., “will be available to any managing agency, irrespective of size, allowing syndicates with small stamp capacity to access the advantages of a sidecar arrangement without incurring the setup costs.”
Managing agencies will be able to access additional capacity without diluting shareholders’ equity or taking on additional debt.
Also, the Syncro arrangement with Lloyd’s “will allow participation both for specific lines of business (as with traditional sidecars) or on a whole-account basis, which plays to the benefits that derive from Lloyd’s more diversified business spread.”
The creation of this vehicle offers the best of both worlds, Andrew Holderness, head of corporate insurance at Clyde & Co. (which is acting for Syncro Limited), says.
“Under the current regulations at Lloyd’s, it is very difficult for syndicates to increase underwriting capacity to react to market demands, particularly in the middle of the underwriting year,” Holderness says. “For those who can demonstrate a genuine business case, this new vehicle will solve that problem.
“Rather than being a bespoke vehicle for one managing agency, a platform has been created in which a number of underwriters can participate and gain access to flexible capital quickly and cost effectively. It is a ‘plug-and-play’ solution that is ideal for the entrepreneurial businesses at Lloyd’s that want to respond to changing market conditions following events such as the hurricanes of 2004/2005.”