The acquisition of SAC Re, the hedge fund style reinsurer which was launched by hedge fund manager Steven A. Cohen and his firm SAC Capital, has completed in time for the January renewals with a group of investors led by industry veteran Brian Duperreault no taking control.
Hamilton Insurance Group, Ltd., the holding company led by Duperreault and investors, announced the completion of its acquisition of S.A.C. Re, Ltd., a Bermuda-based Class 4 property and casualty reinsurer, today. The acquired reinsurer is being renamed Hamilton Re Ltd.
The formation of Hamilton Re promises to bring a new data-driven approach to reinsurance underwriting, with a data-driven approach to investing the premium and assets being provided by Two Sigma Investments, who also invested in the acquisition. So Hamilton Re will be quite different to SAC Re, a new CEO in Duperreault who brings significant experience to the firm and a new asset manager providing the investment that SAC Capital had undertaken itself.
The investor consortium now owning Hamilton Re include Duperreault, affiliates of Two Sigma Investments, private equity firm Capital Z Partners which was involved in the launch of SAC Re by providing some capital, another private equity firm Performance Equity Management and some institutional investors.
Brian Duperreault, Hamilton Re’s Chief Executive Officer, commented on the completion of the deal; “The Hamilton Re team looks forward to bringing a fresh approach to insurance and reinsurance, one based not just on world-class underwriting, but also a strong foundation of large data analytics, research, and fully-integrated technology. We are excited to get to work with our clients.”
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The news release from Hamilton Re states that ‘Hamilton Re, Ltd. is rated “A-“ (Excellent) with a stable outlook by A.M. Best Company, Inc.’, the same rating SAC Re had so it looks like A.M. Best will transfer the rating with no changes.
Update: Rating agency A.M. Best said that it has removed from under review with negative implications and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of “a-“ of Hamilton Re, Ltd. (Hamilton Re) (Hamilton, Bermuda), formerly S.A.C. Re, Ltd. (SAC Re) (Hamilton, Bermuda). The outlook assigned to both ratings is stable.
A.M. Best explained:
The ratings of Hamilton Re are based on its excellent risk-adjusted capitalization, knowledgeable management team and prudent business plan. Partially offsetting these positive rating factors are the start-up nature of the company, the greater investment risk associated with an alternative investment strategy, as well as the increased competition in the reinsurance marketplace that may challenge some of the company’s business plans.
A.M. Best is concerned there is a possibility that Hamilton could be exposed to a convergence of events due to the adjoining of underwriting risk and the present risk in an alternative investment strategy. Also of concern is the relatively high gross investment leverage used by Two Sigma Investments (TSI) which is higher than other alternative investment strategies. These risks could have an adverse effect on the company’s risk-adjusted capital. However, these risks are mitigated by Hamilton’s low underwriting leverage and experienced underwriting team. The investment leverage concerns are mitigated by the partially hedged nature of the portfolio, the large number of diversified liquid investments, and the investment manager’s lengthy investment track record.
The assets of Hamilton will be managed by TSI, a global firm based in New York, NY, which was founded in July of 2001 by John Overdeck and David Siegel. Hamilton’s assets will be invested in a dedicated “fund of one” which allocates capital to two different trading entities.. These entities apply various strategies to invest in liquid investments in the global equity, futures, FX and derivatives markets.
A.M. Best acknowledged that this is not an easy time to start-up in the reinsurance market, saying that established reinsurers and other start-up entities will provide competition for Hamilton Re. Best also said that the addition of more capital to an already overcapitalised reinsurance marketplace could pressure Hamilton Re’s underwriting margins. Of course this goes for everyone else in the reinsurance sector as well, whether traditional or alternative capital and strategy backed.