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Concord Re takes sidecar fundraising close to $4bn

Concord Re, the latest sidecar to roll off the industry's production line, means almost $4bn of capital has been raised for these non-life reinsurance vehicles in the aftermath of Hurricane Katrina.

American International Group has formed Concord Re, a class 3 special purpose Bermudian insurer that will write a quota-share of its surplus lines subsidiary Lexington Insurance Company's property book.

Under the reinsurance agreement, Concord Re will write a quota share of the gross premiums and risks on the first $10mn of limits per policy, per occurrence ($5mn for construction risks) on business assumed by the Lexington Property division.

AM Best has awarded a bb+ debt rating to the company's $375m secured credit facility and a bbb- credit rating to the issuer. In addition, the vehicle is expected to raise up to $375mn in equity taking its total capitalisation to $750mn.

Like most sidecar vehicles, Concord Re does not have a financial strength rating but will instead offer fully collateralised security to Lexington.

AM Best explained: "Lexington has a mature underwriting team that has many years of experience in the excess and surplus property/casualty lines of business. Strict adherence to underwriting guidelines, including maximum line size and retention levels, is expected to minimise risk exposure."

Although separately capitalised, sidecars are dependent upon the ceding company for its livelihood. They are typically short-tail in nature and many provide collateralised security, in lieu of a financial strength rating.

The Insurance Insider's table of post-Katrina sidecar formations indicates that around $3.9bn of capital has now been raised by these vehicles. Almost all focus on US/Gulf of Mexico catastrophe (re)insurance where capacity from the traditional markets is particularly stretched.

Many of the investors in the vehicles are hedge funds/private equity firms tempted by the prospect of 20-30+ percent returns if there is a benign 2006 cat season.

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