Harbor Point Limited, one of Bermuda?s newest reinsurers, yesterday joined a growing number in the Island?s insurance market to directly sponsor smaller reinsurers, in a bid to boost access to reinsurance protection.

Bay Point Re, Harbor Point?s so-called ?side car? vehicle, was incorporated in Bermuda on May 29. As a sidecar, Bay Point, will provide reinsurance for short-tail business to Harbor Point, a $1.5 billion global reinsurer formed in the wake of last year?s Hurricane Katrina. Harbor Point, like others in the ?Class of 2005?, was formed to take advantage of an expected rise in premium pricing on the heels of two consecutive years of costly hurricane activity. Last year?s insurance losses alone are expected to add up to around $80 billion.

Harbor Point forming Bay Point makes it the second reinsurer in the ?Class of 2005? to form a side car, after Validus Re formed sidecar Petrel Re on April 24. Harbor Point, which was formed on October 25 as a result of Chubb Corp. spinning off its reinsurance operations, was one of ten major insurers to incorporate on Bermuda last year.

?Capacity in many catastrophe-exposed lines is extremely tight,? said chief executive John Berger. ?Bay Point will give us additional capacity and will be a strategic tool that allows us to capitalise on the opportunities currently available in the market, as well as those expected in the second half of the year.?

Property-catastrophe policies are generally renegotiated around this time of year, and rates for some types of coverage, especially in hurricane prone areas, have skyrocketed. While insurers and reinsurers want to be in line to sell the higher priced policies they are wary of being overly eager as rating agencies are closely watching the potential volatility that losses could bring to balance sheets.

However, side cars are a way to participate without directly exposing the company?s balance sheet to losses. As is customary with sidecar arrangements, the quota share agreement will be collateralised by a trust fund that includes the capital and surplus of Bay Point, as well as the ceded reinsurance premiums received from Harbor Point.

Bay Point, like a wave of half a dozen other new Bermuda side cars is backed by outside investors. Several funds managed by GoldenTree Asset Management, LP are the principal investors in Bay Point, Harbor Point said, in a statement.

Under Harbor Point and Bay Point?s agreement, designed as a quota-share reinsurance agreement, Harbor Point will cede, or pass on, up to 30 percent of certain lines of short-tail business written by Harbor Point to Bay Point Re. The agreement runs through 2007.

Short-tail business includes such policies as property-catastrophe, and indicates that claims can usually be settled in a year or two.

Casualty policies, on the other hand, are long-tail because claims settlements can drag out decades. Side cars, which have minimal infrastructure, are designed to be wound up quickly once their usefulness expires. Investors see sidecars as a short-term, opportunistic investment, pouring some $2.5 billion into the structures since last year.

The vehicles have attracted interest because they are formed specifically to take advantage of rising policy rates, such as exist now in property-catastrophe reinsurance markets, and particularly in hurricane prone areas. Goldman, Sachs & Co. acted as the placement agent on the Bay Point transaction.