Validus Re in Retrocession Pact with Petrel Re for Marine, Energy Risks

Bermuda-based Validus Reinsurance Ltd., a subsidiary of Validus Holdings, Ltd., announced that it has entered into a collateralized quota share retrocession agreement “side-car” with Petrel Re Ltd., a newly formed Bermuda reinsurance company.

Validus said “Petrel Re is assuming a 75 percent quota share of certain lines of marine and offshore energy reinsurance contracts underwritten by Validus Re for the 2006 and 2007 underwriting years. Other lines of business are expected to be added over time.”

Validus Holdings, which operates through Validus Re, was established in December 2005 with an initial capitalization of $1 billion. It provides property catastrophe, per risk, marine and energy, retrocession and other specialty short-tail lines of reinsurance. Ex-Marsh CEO Jeffery Greenberg heads the venture, which is backed by several funds managed by Aquiline Capital Partners LLC, Merrill Lynch Corporation and Goldman Sachs among others.

Concerning Petrel Re, Validus’ bulletin said its “equity investor” is “one or more private investment funds managed by First Reserve Corporation, a leading private equity firm with a 23-year history of investing exclusively in the energy industry.” It added that “Petrel Re is required to contribute funds equal to the full amount of their net exposures into a trust for the benefit of Validus Re. Petrel Re has no current plans to obtain a rating from any rating agency.”

Concerning the sidecar agreement, Validus said it “will underwrite and retrocede reinsurance contracts to Petrel Re consistent with agreed underwriting guidelines, enabling Validus Re to leverage its established underwriting and technical resources on a distinct capital base. Validus Re will pay to Petrel Re a reinsurance premium in the amount of the ceded percentage of the original written premium on the business reinsured with Petrel Re less a ceding commission, which includes a reimbursement of direct acquisition expenses as well as a commission to Validus Re for generating the business.”

The bulletin noted that the “treaty also provides for a profit commission to Validus Re based on the underwriting results for the 2006 and 2007 underwriting years. Paul Manders and Paul Roberts, who are responsible for the Global Marine and Energy classes of business at Validus Re, will oversee the underwriting.”

George P. Reeth, President and Deputy Chairman of Validus Re, commented: “We are very pleased to be working with Petrel Re and First Reserve on this agreement, particularly given the firm’s extensive experience in the global energy business. We also view this initiative as a strategic part of Validus Re’s business plan. This deal allows us to leverage our resources more effectively while at the same time managing our net exposures.”