Swan Re Ltd. has launched in Bermuda as the latest reinsurance firm backed by an asset manager following a hedge fund reinsurer strategy of using its capital to underwrite while generating additional profits investing the premium or float within its investment strategies.
Swan Re Ltd., a Bermuda-domiciled Class 3A reinsurer is owned by Swan Group Holdings Ltd. (SGHL) and sponsored by Swan Wealth Advisors of Durango, Colorado. Swan Wealth Advisors is an asset manager with a track record for providing attractive returns which has seen the potential of the hedge fund reinsurer strategy and has selected the Multi-Strat Re Ltd. platform to help it achieve this.
Multi-Strat Re Ltd. is a Bermuda based reinsurance venture that seeks to enable asset managers, such as hedge fund managers, to enter the reinsurance market with less friction. It allows asset managers, such as Swan Wealth Advisors, to access reinsurance business through its pooled underwriting approach, dividing the premiums between its participating asset managers who can then invest the float in their high-return investment strategies.
Swan Wealth Advisors will, through an investment management agreement, manage the assets of Swan Re utilizing its Defined Risk Strategy (DRS). This strategy is designed not to lose capital during a market downturn, instead focusing on capturing the upside of the market while hedging the downside.
The DRS strategy has been successful for Swan Wealth Advisors, generating 9.3% average annual net returns to its investors over its 16 year history, while only exhibiting half the volatility of the S&P 500 Index.
Swan Re’s reinsurance business will be sourced through the MultiStrat Re platform, a Bermuda special purpose insurer, through a quota share reinsurance agreement alongside other participating Multi-Strat strategy reinsurers.
This allows Swan Wealth Advisors to focus on the task of managing the premium float assets within its existing investment strategies to generate an outsize return, while Multi-Strat deals with the underwriting of reinsurance business to generate the premiums to be invested.
Randy Swan, Chairman of SGHL, commented; “We are pleased to offer investors an opportunity to seek high returns by combining our low risk DRS investment strategy with MultiStrat Re’s stable, low volatility reinsurance business.”
Randy Swan, founder of Swan Wealth Advisors, will be Chairman of the Board of SGHL. He will be joined on the Board by Gregory Morrison, ex-CEO of Platinum Underwriters, who has been named as Chief Executive Officer and Jonathan Dodd, ex-CFO of Quanta Capital Holdings, as Chief Financial Officer, both well-known in the Bermuda reinsurance market.
Joe Taussig, of Taussig Capital who advised SGHL and previously advised on the formation of both Greenlight Capital Re (GLRE) and Third Point Re (TPRE), said; “While past performance is no guarantee, SGHL will be following the path laid out by Berkshire Hathaway and, more recently, improved by GLRE and TPRE, which have delivered superior returns and outperformed Berkshire Hathaway as well as their benchmark funds.”
Taussig continued; “Greenlight Re has been in business for nearly 10 years. During that time, Einhorn and Swan’s investment performance have been more or less the same, although Swan’s has been less volatile. As such, Swan Re can afford to leverage its balance sheet more than Greenlight has and it would not be unreasonable to expect Swan first 10 years to outperform Greenlight Re’s first 10 years if Swan can hold form on his past performance.”
Swan Group Holdings Ltd., and as a result Swan Re, will be capitalised by selling shares to accredited investors with a minimum investment of $1 million.
Capital raised will fund and collateralize the underwriting operations of Swan Re and the investors will benefit both from the underwriting performance of Swan Re, and ultimately Multi-Strat Re, as well as the return of Swan Wealth Advisors DRS investment strategy.
Swan Re is the most recent launch on the Multi-Strat Re platform and it is expected that other asset managers and hedge fund managers may choose to follow suit.
The Multi-Strat model provides an opportunity for asset managers to get into the reinsurance business with less friction while ultimately offering investors a way to access reinsurance industry returns boosted by the investment strategy of the asset manager. It’s an interesting model which will prove very attractive to some investors who prefer less underwriting risk and are happy to take a little more risk on the investment side.