A US Securities and Exchange Commission (SEC) filing, dated January 3, states: “Arch Capital Group Ltd announced today that its newly-formed subsidiary, Arch Underwriters Ltd, has agreed in principle to act as reinsurance manager for a newly-formed multi-line Bermuda reinsurance company, Watford Re, which is expected to be funded principally with third party capital. Highbridge Principal Strategies, LLC will act as investment manager for Watford Re.”

According to its website, Highbridge Principal Strategies Growth Equity invests in media, communications and technology convergence and has managed total investment assets of over $650 million. It states: “Highbridge Principal Strategies Growth Equity is a division of Highbridge Principal Strategies, which was launched in 2007 as the private equity and credit investment platform of Highbridge Capital Management, LLC, a global alternative investment management firm founded in 1992. Highbridge Principal Strategies is now a multibillion dollar business that manages debt and equity opportunities with longer-term holding periods, including: loan, mezzanine, private equity and other investments.”

Highbridge Capital Management is a subsidiary of JPMorgan Asset Management Holdings Inc.

Website Artemis reported: “There have been rumours for a few months that Arch and Highbridge were working on an alternative reinsurance capital play of some description and that it would involve giving third-party capital access to casualty lines of business.

“It was never clear whether this was a reinsurance sidecar of some description, but with Highbridge acting as an investment manager Watford Re is perhaps destined to be more similar to a hedge fund reinsurer strategy, possibly sourcing its book of reinsurance through a quota share from Arch itself.”

It stated that this would allow Arch to leverage a source of third-party capital, passing on a quota share of risk to Watford Re “ ... while Highbridge Capital invest the quota share premiums in its Principal Strategies, seeking to outperform the investment returns of other re/insurers. Arch would also effectively increase its own capacity by being able to pass on a quota share to Watford Re.”

The publication stated that third-party investors “might like this strategy, as they get the benefits of an established insurance and reinsurance underwriter, in Arch, and a high-performing investment manager, in Highbridge.

“A slightly different strategy might see Watford Re underwriting its own portfolio of reinsurance business with the help of Arch Underwriters Ltd., but again with a typical hedge fund reinsurer strategy to invest the premium float in Highbridge strategies.”