The board of Hiscox plc has announced that, in order to take advantage of expected underwriting conditions, Hiscox Syndicate 33, which it manages and in which it has a 72.5 percent participation, is in discussions which could lead to the creation of a new reinsurer which will only reinsure Hiscox Syndicate 33. If the transaction proceeds investors will capitalise a newly established Bermuda reinsurer which would enter into a quota share reinsurance arrangement with Syndicate 33 in respect of its 2007 and possibly the 2008 Lloyd’s years of account.

The company claims that the reinsurance treaty is likely to be for a fixed share of Hiscox Syndicate 33’s own reinsurance account, though the final business mix has not yet been finalised. The new vehicle will be capitalised by a mixture of debt and equity. Hiscox will not be an investor in the new vehicle.

Hiscox Syndicate 33 will benefit by earning ceding and profit commissions typical in quota share arrangements. If the reinsurance transaction is not structured as a Lloyd’s Qualifying Quota Share, then it is likely that Hiscox Syndicate 33 will pre-empt its 2006 capacity of £833 million by up to ten percent for the 2007 year of account. Hiscox and Lloyd’s are in ongoing discussions on the final structure and the capital implications of the proposed quota share. Hiscox Syndicate 33 will be required to enter into customary indemnity and hold harmless arrangements with the various advisers to the new vehicle.