Hedge fund reinsurer Sandell Re lists in Bermuda

The parent of hedge fund, investment oriented or total return strategy reinsurance firm Sandell Re, which has its assets managed by Sandell Asset Management Corporation, has been listed on the Bermuda Stock Exchange (BSX).

Hedge fund manager Sandell Asset Management Corporation (Sandell) sponsored the establishment of Sandell Re in 2015, launched as a Class 3A reinsurer, incorporated and licensed by the Bermuda Monetary Authority.

Now, roughly a year after its incorporation Sandell Holdings Ltd., the parent company of the Bermudian reinsurer that underwrites through Sandell Re, has listed $53 million of shares on the BSX.

“We believe that listing on the BSX was a natural next step because of the BSX’s international reputation as one of the world’s fastest growing offshore stock exchanges. We chose to incorporate our companies in Bermuda because of its reputation as a world class insurance and reinsurance market and its reputation of transparency,” said Chairman and Chief Executive Officer (CEO) of Sandell Holdings Ltd., Tom Sandell, as reported by The Royal Gazette.

The hedge fund style reinsurance model, which is best known with firms Greenlight Re and Third Point Re, has endured a challenging operating environment where low interest rates have diminished returns on the investment side of the balance sheet, which is the main focus of the strategy.

Both Greenlight Re and Third Point Re have reported divergent and mixed returns since their inception, and while the model is struggling to compete with traditional reinsurers in the current softening landscape, analysts have warned that it’s too early to say the hedge fund reinsurance approach is a failure.

The listing of Sandell on the BSX is a sign of another hedge fund-backed reinsurance company looking to grow, perhaps making themselves more attractive and interesting to investors, which could increase investor appetite for working with the recently listed entity.

So despite challenges for hedge fund reinsurers in the marketplace, Sandell clearly feels that there are opportunities to make the hedge fund style reinsurer business model work, and the listing on the BSX is a sign of intent and expansion.

“We were very pleased with the listing process, which demonstrated to us why the BSX has been so successful, with a good balance between strong regulatory oversight and a pragmatic approach to issuers. Estera and Applyeby provided excellent guidance every step of the way,” continued Sandell.

The Royal Gazette also reported that Sherman Taylor, Associate Director, Bermuda, at Estera, which acted as the listing sponsor for Sandell, said; “I am excited by the possibility that many more Bermuda commercial insurers will follow the lead of Sandell Holdings Ltd, and also list their shares on the BSX’s mezzanine market, which will add a brand new dimension to the BSX’s undisputed global dominance in ILS listings.”

It remains to be seen how successful the hedge fund reinsurance model could be in a more favourable operating environment, but Sandell’s listing on the BSX suggests the firm is eager to expand its presence in Bermuda.

Should investment returns improve there’s clearly scope for the hedge fund model to produce impressive results for shareholders, but with less focus on the underwriting element of the business, which is enduring its own substantial challenges, it might be difficult for such strategies to outperform the traditional players, but only time will tell.

“This listing helps to confirm Sandell Holdings Ltd.’s long term commitment to Bermuda as its domicile of choice and reinforces its Bermuda presence at the highest level. The BSX looks forward to working with Sandell Holdings Ltd as the company develops and grows in Bermuda,” said James McKirdy, Chief Compliance Officer of the BSX, also reported by The Royal Gazette.

The potential scale of the cyber insurance market is staggering and as attacks continue to take place around the world and technology advances some of the questions around the understanding of the risk should become clearer. Ultimately, this should help to build the confidence and comfort of insurers, reinsures, ILS funds and investors to operate in the space in a much more meaningful way.