Citigroup Global Markets has set up an internal reinsurance arm, dubbed Global Reinsurance Capital, that will underwrite catastrophe risks. The firm is expected to structure 'catastrophe derivatives' through the use of swaps and options as part of the operation, according to officials. Danielle Romero, spokeswoman in New York, declined comment.
The new venture is being timed to exploit what the investment giant perceives to be mispricing in the catastrophe bond market in the post September 11 environment, according to one official familiar with Citigroup's plans. He added that the firm will underwrite property cat risk.
While competitors such as Goldman Sachs and Lehman Brothers structure catastrophe derivatives through subsidiary firms, Arrow Re and Lehman Re respectively, Citigroup differs by managing the business within its investment banking market risk business, noted industry officials. Arrow Re and Lehman Re are domiciled in Bermuda to benefit from favorable taxation practices, but it could not be determined how much of Citigroup's business will be conducted offshore.