Daily briefing: Friday - Catlin signs savvy China deal

There had already been signals earlier in the week that insurance market optimism is returning. A further sign came this morning with Catlin’s announcement that it is launching a so-called sidecar syndicate in conjunction with China Re.
 
Simply put, the new syndicate will act as a dedicated reinsurer for Catlin’s existing Lloyd’s syndicate, enabling it to write more business without raising fresh capital. Catlin made the move because it is seeing price rises in certain lines of business, most likely property and catastrophe, and means to take advantage of them.
 
Catlin’s managing agency will control the new syndicate, but the capacity will be provided by China Re.
 
Sidecars are ideal for this type of market, where opportunities could appear at the blink of an eye, then disappear just as quickly as the rest of the market piles in. Shareholder capital would take time to raise and there would be pressure to either deploy it or return it.

Sidecars are more flexible and opportunistic. The capital can be dipped in and out of as required, and there is no penalty for not tapping it - though China Re will doubtless have expectations about how much of the £50m capacity it will want to see used.
 
If at first you don’t succeed …

This is not the first time Catlin has tried to employ a sidecar structure. It attempted to launch an investor-backed vehicle, Long Bay Re, in June last year. The capital would have been provided by listing shares in the vehicle on the London Stock Market’s Alternative Investment Market. However, shareholder concerns about the soft conditions of the (re)insurance market at the time, among other things, forced the project to be shelved.
 
With China Re, however, Catlin has a committed partner that wants access to Lloyd’s business and that, in return, can provide the Lloyd’s insurer with valuable knowledge about the Chinese market.

Criminal stupidity

How did he think he could get away with it? The world’s most foolish insurance broker, John Folan, was fined £195,000 and banned by the FSA after issuing fake policy documents in family members’ names.

The idea was to pay the premiums on the life and protection policies, but rake in even more from earning the commissions on the policies that he issued as a broker. It was a bizarre form of arbitrage that was bound to go wrong. What’s amazing is that he thought he could get away with it.