Lloyd?s of London has taken a leaf out of Bermuda?s book of solutions, and rather belatedly added a sidecar to its armoury.

Thunderbird Re, a Cayman Islands-based sidecar, has been established, although its exact purpose is still being thrashed out. The London market leader describes its new creation as ?coming soon?.

Thunderbird Re, Lloyd?s says, will be ?a framework to give syndicates access to a pool of securitised reinsurance capacity.?

Lloyd?s is now creating a working party of managing agents ?to determine the size and nature of Syndicate catastrophe bond requirements going forward?.

The announcement of the new vehicle was timed for the Monte Carlo Rendezvous, which will be held during the week of September 11.

Thunderbird Re will either be collateralised by cash contributions from Lloyd?s Syndicates, or, more likely, a series of catastrophe bonds will be issued, for which hedge fund managers might be the likeliest subscribers. Lloyd?s Syndicates could then allocate parcels of their risk to Thunderbird Re on a basis yet to be agreed.

Investors are unlikely to want to sink money into only the most dangerous of Lloyd?s risks, or those coverages the member Syndicates wish they had not written in the first place and are now looking for somewhere to park, off their books.

What the managing agents will be deciding is how Syndicates might allocate risks, and the nature of those risks, to Thunderbird Re.

Lloyd?s has begun to take a more active oversight role in its Syndicates? activities. On its website () Lloyd?s notes that its Syndicates ?have an ally in the Franchise Performance Directorate, which has, among other things, the dual role of monitoring the Syndicates? catastrophe exposure levels and opening up channels of communication between the market and its reinsurance partners to enable collection of catastrophe claims.?

Lloyd?s said its reinsurance oversight is ?considered on two levels. The first level looks at the active and current reinsurance underwriting and conditions, while the second concentrates on the levels of reinsurance assets outstanding in the market.

Reinsurance availability and price for US catastrophic risk, added to the entry of new insurers and increased interest shown by capital markets through hedge funds,? creates what Lloyd?s ?joint head of underwriting and business plan review franchise performance?, Bob Stevenson, describes as a ?fascinating market dynamic?.

Earlier reports suggested that Thunderbird Re would issue up to $500 million in cat bonds, which would make it one of the medium-sized special purpose vehicles set up to mitigate the worst of reinsurers? losses and transfer risk to the hungrier hedge fund managers.

?Insurers, including Syndicates at Lloyd?s, are obliged to explore alternatives that access capital markets to supplement traditional sources of reinsurance supply,? Mr. Stevenson commented.

?These alternatives range from reinsurance sidecars to securitisation through the issuance of catastrophe-related bonds and everything in between.?

Bermuda appears to have almost a year?s jump on Lloyd?s, with Montpelier Re having spearheaded the formation of special purpose risk-spreading vehicles as early as December, 2005.

Thus far, 15 Bermuda special purpose vehicles have been reported by Bermuda companies, covering both ceded reinsurance and collateralised cat bonds. Other Bermuda reinsurers have told , not for attribution, that they too have sidecars, but have chosen not to make the details public.

The bulletin in which Lloyd?s confirmed the formation of Thunderbird Re, basic details of which had been floating around in the market for more than a week, was dated August 31, last Thursday.

The bulletin also highlights the increasing concern over the differentiation between ?vertical? exposure arising from a single event, and the evaluation of ?horizontal? exposure from multiple events, during the course of the 2006 US windstorm season.

Although Hurricane Katrina did such great economic damage, the reinsurance industry would have survived the 2005 season more efficiently had it not been for Hurricanes Rita and Wilma, which followed.

Insurance coverage can be reinstated after one event, but a third event in a single season (or a third and fourth, as happened in 2004) can create all kinds of problems for insurance companies, whose reinsurance coverage usually runs out after two.

The introduction of sidecars and the sudden interest in cat bonds are a direct result of the damage two years of multiple storms did to insurers and reinsurers.