Bermuda-based RenaissanceRe Holdings Ltd. has created a new Island-based reinsurance company, specifically to cater to homeowners' business in Florida.

Starbound Reinsurance II Ltd. will create around $375 million in new reinsurance capacity for the Sunshine State.

RenRe will cede to Starbound II a certain percentage of its property catastrophe excess of loss business, covering primarily hurricane risks for Florida homeowners.

This will be done by means of fully-collateralised quota share retrocession agreements.

The move shows that RenRe has not lost confidence in the Florida market, despite the decision of state lawmakers last year to add around $14 billion of reinsurance capacity to the state-run catastrophe fund in order to cut the price of insurance for homeowners. Effectively it became a competitor for companies like RenRe.

RenRe chief executive officer Neill Currie said: "We are pleased to announce the closing of the Starbound II transaction, which is consistent with our commitment to seek to meet our clients' reinsurance needs while maintaining a balanced portfolio.

"While we believe that private market capacity this year is not as constrained as in June 2006, we were pleased to work with Benfield Advisory and Merrill Lynch to bring Starbound II to market."

RenRe president Kevin O'Donnell said the formation of Starbound II will allow RenRe to authorise additional lines on covers it was already writing and to cede this incremental business to the new company.

RenRe was founded after the capacity shortage in the wake of Hurricane Andrew in 1992. The company still focuses on property and catastrophe business and has had wide exposure in Florida.

It paid out nearly $314 million in claims for losses related to the 2005 Hurricane Wilma and more than $500 million for the succession of intense storms that battered Florida in 2004.

Last year, the company swung to a profit of $761 million, helped by the fact that no hurricanes made landfall in the US.

A statement from RenRe on Monday said that Starbound II's capitalisation included $102.5 million derived from its issuance of equity securities (approximately $10 million of which was purchased by RenaissanceRe Ventures Ltd.), and $239 million from Starbound II's issuance of senior secured and unsecured term indebtedness.