Market Report: US - A new direction - Channel Re's buoyant launch.

(From Reinsurance)

Renaissance Re, Koch Financial (through its affiliates Koch Financial Re), PartnerRe and MBIA, have launched Channel Reinsurance, a financial guarantee reinsurer based in Bermuda. It will be capitalised with equity capital of around $366m. The company will assume approximately $27bn portfolio of in-force business from MBIA, participate in its reinsurance treaty and provide facultative reinsurance support. Following the assumption of the in-force business the company will have total claims-paying resources of approximately $700m.

Channel Re president and chief executive Mike Maguire said at the launch: "The unique structure of Channel Re's preferential relationship with MBIA and the provision of long-term stable, highly rated reinsurance to MBIA are expected to produce attractive long-term returns for the investors."

Renaissance Re chief executive Jim Stanard said: "The strategic relationship with MBIA allows Channel Re to rapidly deploy its capital by the assumption of an in-force portfolio, and gain the benefit of MBIA's market-leading expertise."

Moody's has assigned the new operation an insurance financial strength rating of 'Aaa', which it says reflects the company's highly predictable business prospects and conservative underwriting criteria. Through a series of reinsurance agreements governed by a master agreement set up between the reinsurer and MBIA, Channel Re is guaranteed a stable flow of diversified business from MBIA for a multiyear period. Channel Re will also benefit from the combination of a low ceding commission, a low expense ratio and a favourable tax environment.

The new company is now poised to become the largest reinsurer of MBIA, representing approximately 30% of MBIA's reinsurance usage. It will also become a significant reinsurer of MBIA's credit default swap exposure through facultative arrangements.

Moody's says its rating also reflects the high quality of Channel Re's start-up reinsurance portfolio, which is the result of MBIA's decision to recapture and re-allocate exposure that had been ceded to other reinsurers.