One of the criticisms of the hedge fund or asset manager backed reinsurance business model is that some firms horde their capital, rather than deploying it to underwrite risk, but in Hamilton Re’s case that’s not true, said CEO Kathleen Reardon.
Reardon, speaking to A.M. Best TV (video below) at the Monte Carlo Reinsurance Rendez-vous, took time to explain the reinsurers strategy and why it has partnered with a high performing hedge fund manager on its asset side.
Hamilton Re aims to outperform, with a stellar underwriting and leadership team and a partnership with Two Sigma, a technology focused investment management firms. This is a little different to the typical hedge fund reinsurer business model, which often sees the reinsurer underwriting lower-volatility, mid to long-tailed business in order to manage the premium float more predictably on its asset side.
Hamilton Re aims to underwrite the business it finds attractive and that means a more risk-focused approach to underwriting than some of the hedge fund reinsurer breed. It also aims to deploy its capacity to underwrite, so keeping only the assets required to pay claims within the account that Two Sigma will manage.
In this way Hamilton Re hopes to outperform its peers, both traditional and hedge fund backed, by achieving positive underwriting returns boosted with a high-performance investment strategy.
In the video interview Reardon comments; “It’s important to get the message out that we’re taking risk here. We’re not asset gatherers. We’re taking risk. We’re combining that with an enhanced asset strategy to make a unique combination.”
Two Sigma is also assisting Hamilton Re with technology on the underwriting side, as well as working on managing the reinsurers assets. Reardon explained; “What we’re trying to do there is use our technology partner, Two Sigma, to enhance the underwriting on the insurance side. We’ll probably start with classes of business that lend themselves well to data mining, perhaps, classes with more frequency than severity.”
Hamilton Re hopes that the technology focused approach to both underwriting and asset management, with a partner like Two Sigma, will help it to outperform, resulting in a more attractive return for its shareholders and investors and more efficient products on the underwriting side for clients.
Interestingly, Reardon says that Hamilton USA is still in start-up mode and that it may begin underwriting some business around the end of the year. Hamilton Re, which began underwriting from the Bermuda platform in December 2013, is spending time on ensuring its U.S. arm has the right team, the right technology and the right approach to asset management, to ensure it can get off on the right foot.
Also, with the U.S. government said to be considering targeting hedge fund backed reinsurers, in an effort to prevent them being used as a way for the asset manager to channel funds through more tax efficient domiciles, examples set by Hamilton Re and others are important to show that the business model is purely an innovative take on traditional reinsurance with a target of outperforming.
View the A.M. Best TV video interview below: