Enstar, one of the largest legacy and run-off reinsurance specialists in the world, has launched its first direct third-party capital play, a $300 million casualty reinsurance sidecar named Scaur Hill Re Ltd.which is backed by a number of institutional investors, Artemis has learned.Scaur Hill Re Ltd.is particularly notable, being the first time Enstar has directly transacted risk with investors, in an insurance-linked securities (ILS) style through a managed structure it owns, such as a sidecar in this case.

The company has previously operated a number of third-party capital backed total-return, or hedge fund reinsurance type joint-venture vehicles, Aligned Re, Kayla Re and Enhanzed Re.But never before has it entered into a direct managed ILS style transaction of this kind, where it has ceded a portion of its risk to a structure so it can be backed by third-party investors.As a result, the launch of the Scaur Hill Re Ltd.

sidecar can be considered to indicate a new phase in Enstar’s deepening partnership with third-party capital investors and its use of ILS techniques and structures.Scaur Hill Re Ltd.is a Bermuda-based collateralized insurer class of company and has been established for use as a sidecar structure, through which Enstar can cede risk to investors, with the structure issuing shares or notes to enable them to allocate to different series opportunities, we have learned.

We understand that the $300 million cession features a vertical slice of a large, legacy transaction that Enstar had previously entered into.This transaction is both large and diversified and a 10% slice of it has been ceded to the sidecar, presumably on a quota share basis.A small group of third-party institutional investors have funded the sidecar to the tune of $300 million to support the capital needs of the risk.

We understand the diversified legacy transaction that Scaur Hill Re now supports a slice of is a longer-tailed casualty arrangement, making the structure the latest casualty sidecar reinsurer to be launched.We’re told Enstar continues to manage the assets related to the risk ceded, while a performance based fee system is in place to ensure alignment between the company and the investors backing Scaur Hill Re Ltd.We’ve also learned that this initial Scaur Hill Re sidecar transaction from Enstar features exit opportunities for the investors backing the structure, with an optional commutation at year 7 and a mandatory exit at year 10, thus providing investors certainty of the duration of their capital investments.

These exit points come with pre-specified pricing we understand, showing Enstar leveraging the experience it has gained in providing exit opportunities to insurance-linked securities (ILS) investors in a transaction of its own making.Recall that Enstar has previously .The company has also been active in providing legacy solutions for ILS managers and funds as well, as it looked to the ILS market as an additional source of legacy reinsurance opportunities.

Examples of ILS legacy deals entered into by Enstar can be found and here.We understand that Enstar has been seeing interest from investors in participating more directly in its own legacy and run-off transactions, which is no surprise given the scale and sophistication the company has and the track-record it has developed over the years in profitably managing legacy portfolios.As investors look to broaden and diversify their sources of risk in insurance-linked securities (ILS) investments, legacy specialists are considered a partner that have significant experience in managing portfolios over-time, especially in longer-tailed lines of reinsurance business where claims assessment, management and analytics are so important.

In this arena, Enstar is an expert and has also developed useful features that can be embedded into ILS transactions to provide finality and certainty for investors on commutation or exit, which makes the company an even more attractive partner to work with.Legacy transactions are considered balance-sheet heavy, so sharing some of the risk and economics with efficient third-party capital sources makes sense for Enstar.As a way to help make the Enstar business more capital efficient, while also deriving a risk management benefit through ceding a vertical share of a large transaction, as seen in the case of this first Scaur Hill Re sidecar arrangement, and with the prospect of generating fee income.

With Scaur Hill Re Ltd.being a Bermuda collateralized insurance vehicle, it is re-usable for Enstar and can be utilised for sidecar and other ILS use-cases in future as well..

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