We’ve reported regularly on the influx of capital from investors such as hedge funds into the reinsurance market via both traditional reinsurance start-ups and non-traditional instruments such as catastrophe bonds. Now the reinsurance market has another $500m of capital to help temper rates from the launch of Bermuda based SAC Re. The reinsurer launched yesterday announcing it had raised $500m of capital in a private placement of the equity securities of its parent, S.A.C. Re Holdings, Ltd.
SAC Re is the reinsurance play of Steven A. Cohen, the billionaire hedge fund manager and founder of SAC Capital Advisors LP. He becomes the latest hedge fund manager to launch a reinsurance play in Bermuda after Daniel Loeb with Third Point Re and David Einhorn with Greenlight Re. Cohen’s SAC Re will follow a similar strategy in that the aim is to gain additional capital for the hedge fund business from the reinsurance market. As a result, we understand that SAC Re will invest the majority of its assets in Cohen’s hedge funds. Cohen himself and Capital Z Partners III, L.P. are named as founding investors in the new reinsurer. Capital Z has history in the reinsurance sector having been a founding investor in Endurance Specialty Holdings and Lancashire Holdings.
SAC Re is a class 4 Bermudian reinsurer and intends to operate a business model which will see them target the underwriting of high margin property catastrophe and low severity casualty reinsurance business. SAC Re’s investments will be managed by SAC Capital. They aim to generate attractive, risk-adjusted returns for investors by combining an experienced underwriting team with asset and investment management skills of the hedge fund industry. They’ve named their launch team as Simon Burton, Chief Executive Officer, who will lead the senior management team, which includes Jonathan Reiss, Chief Financial Officer; Claude Lefebvre, Chief Underwriting Officer Casualty; Victoria Guest, General Counsel; and Peter Skerlj, Head of Risk & Analytics. Kathleen Reardon will be joining the team later this year as Chief Underwriting Officer Property, subject to Bermuda Department of Immigration approval. Kenneth J. LeStrange will serve as Chairman of the Board of Directors of S.A.C. Re Holdings.
S.A.C. Re Chief Executive Officer, Simon Burton, said; “We are delighted to commence operations in Bermuda with a unique business plan that leverages the combined strength of our reinsurance executive team and S.A.C. Capital’s asset management capabilities.”
We’re told that this strategy see’s these hedge fund managers looking for sources of capital that is more sticky and less prone to investor withdrawal. The longer duration of reinsurance investment capital and the currently attractive rates means this is a good time for Cohen to launch SAC Re to capitalise on a new source of capital at a time the broader financial markets are struggling. We expect that SAC Re will be aggressively deploying this capital at the next renewals.
A.M. Best have given SAC Re a financial strength rating of ‘A-‘. Best cited some concerns about the strategy, which may have led to a slightly lower rating than a more traditional reinsurer, citing the possibility of a convergence of events due to underwriting risk and the risk inherent in an alternative investment strategy. However, A.M. Best said that SAC Re’s low underwriting leverage, experienced underwriting team, partially hedged nature of the portfolio along with its investment manager’s lengthy investment track record help to mitigate these concerns.
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