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Earlier this year, White Mountains committed up to $30 million in capital for a Bermuda-based collateralized reinsurance structure that provides sidecar-like support to its California homeowners managing general agent (MGA) Bamboo.
Back in 2020, White Mountains Insurance Group entered into an agreement to acquire a majority stake in Bamboo, an MGA platform and provider of homeowners’ insurance for more than 100,000 California policyholders at the time.
Now, White Mountains positions Bamboo as “a capital-light, tech- and data-enabled insurance distribution platform providing homeowners’ insurance and related products to the residential property market in California.”
Bamboo offers admitted and non-admitted policies in the California market, primarily through Bamboo MGA, its full-service managing general agent, where it manages the placement process on behalf of fronting and reinsurance partners, earning commissions based on the volume and profitability of the insurance business that it places.
As a result and like many other risk originating MGA’s, reinsurance capital efficiency is key and it seems this is likely where White Mountains can assist, while at the same time likely helping to derive greater profitability at its Bamboo unit through being the third-party capital provider itself, rather than partnering with an external investor to collateralize this reinsurance structure.
It now transpires from company reports that White Mountains committed $30 million in capital to this Bermuda domiciled special purpose collateralized reinsurance vehicle that provides reinsurance capacity to Bamboo.
In the second-quarter of 2024, White Mountains began the process by capitalising the Bamboo collateralized reinsurance vehicle to the tune of $12.1 million through a purchase of preference shares.
These shares were deposited into a collateral trust account, while the reinsurance vehicle entered into a collateralized quota share agreement with one of Bamboo’s fronting partners to provide reinsurance protection covering Bamboo’s admitted and non-admitted business that is underwritten in the 2024 treaty year.
White Mountains has the right to receive returns under the agreement it seems, so for the company this effectively works like a reinsurance-linked investment, but with the added benefit of being internal within the overall group, so adds an additional layer of efficiency, compared to any returns being paid to external investors, it appears.
As of the end of September, the Bamboo collateralized reinsurance vehicle had recorded loss and LAE reserves of $8.1 million, with $4.2 million of that coming in the third-quarter. White Mountains reported $20 million of earned premiums, $8 million of loss and loss adjustment expenses and $7 million of acquisition expenses related to the Bamboo collateralized reinsurance vehicle for 2024 to the end of September.
MGA’s leveraging insurance-linked securities (ILS) type structures and alternative sources of reinsurance capital is a growing trend (one we’re discussing in this upcoming webinar).
Here White Mountains is showing how it can leverage its own appetite for reinsurance-linked returns to support a group company and help to make its reinsurance use more economically efficient.
For Bamboo, this collateralized structure acts like a quota share reinsurance sidecar, capitalised with the support of its major share holder, rather than an external third-party investor.
Bamboo has been growing strongly as well, suggesting a growing need for reinsurance to support its business.
Its CEO John Chu said that, “managed premiums doubled year-over-year to $148 million, and MGA Adjusted EBITDA increased to a record $19 million,” in the third-quarter of this year.
Also saying that, “Growth remains robust given high demand for our services from new and renewing policyholders.”
While White Mountains CEO Manning Rountree, commented, “Bamboo had another strong quarter, doubling managed premiums and growing adjusted EBITDA significantly.”
You can learn more about the growing trend in using capital markets structures at risk originators such as MGA’s in our upcoming webinar on November 21st 2024. Register to watch live here.
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English (US) ·