The ranks of Class 4 reinsurers in Bermuda grew by one last week as SAC Re Ltd. started operations in Hamilton.

SAC Re Ltd. was funded with $500 million in seed capital from investors, including Steven A. Cohen, chairman and CEO of Stamford, Conn.-based hedge fund SAC Capital Advisors L.P., and New York-based Capital Z Partners III L.P.

SAC Re CEO Simon Burton said the firm intends to target a mix of property catastrophe and low-severity casualty reinsurance business. Mr. Burton said the company's business model will fuse a balanced reinsurance underwriting approach with SAC Capital's asset management acumen.

“We've taken a great deal of time to deliberately construct an underwriting plan that is highly complementary to the asset strategy,” Mr. Burton said. “Casualty and property catastrophe are highly accretive, but in different ways.”

Mr. Burton added that while the company didn't engineer its debut to coincide with any particular market timing, he is pleased with the way rates are moving on the property cat side.

“It's a conducive environment to be entering that class of business,” he said.

Conversely, he acknowledges that the casualty business is less rate-dependent as the longer time horizon for the products reconcile with the firm's investment prowess.

“Casualty has, we hope, hit rock bottom, and there are some signs of recovery in isolated areas,” he said. “Having said that, our niche casualty product is not predicated on a real swing in casualty rates. It's largely about float generation.”

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SAC Re continues a trend of reinsurance startups with substantial backing from private equity firms. Bermuda-based Third Point Reinsurance Ltd., founded with backing from New York-based hedge fund Third Point L.L.C., began operations in January. In 2004, Cayman Islands-based Greenlight Capital Re Ltd. was established by New York-based hedge fund Greenlight Capital Inc.

Mr. Burton, who previously was chief underwriting officer of the Bermudian underwriting subsidiary of Lancashire Holdings Ltd., acknowledges that the experiences of Greenlight and Third Point were instructive as he built his management team throughout the past year. That team includes Claude Lefebvre, chief underwriting officer of casualty, who previously was managing director and head of Europe, Middle East and Africa operations for GC Analytics, a unit of Guy Carpenter & Co. L.L.C. In addition, Kathleen Reardon will join the team this year as chief underwriting officer of property, pending Bermuda immigration approval.

While reinsurance startups often are assembled in haste in the wake of large catastrophes such as Hurricane Katrina, Mr. Burton said he had the luxury of time while building SAC Re.

“We have been able quite deliberately pull our executive team together over the last 12 months, and I'm extremely pleased with the strength of our executive leadership,” he said.

Cliff Gallant, an analyst with Keefe, Bruyette & Woods Inc. in New York, said that while the reinsurance marketplace is crowded, there is room for more capital.

“The record so far among hedge funds that formed down there is that they have been pretty responsible players,” he said.

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In assigning a financial strength rating of A- (excellent) and issuer credit rating of a- to SAC Re, Oldwick, N.J.-based rating agency A.M. Best Co. Inc. cited the firm's “excellent risk-adjusted capitalization, knowledgeable management team and prudent business plan.”

Noting that a hard market has yet to materialize, Brian McGuire, senior vp of Pearl River, N.Y.-based reinsurance brokerage U.S. RE Corp., said new Bermuda entrants will face challenges.

“Third Point Re and SAC Re are looking for high-quality returns on catastrophe business,” but it probably will take some time to generate the desired returns, he said.

However, Mr. Burton expressed confidence.

“We expect to grow organically quite significantly over the next few years, but for now we have no expectations to be in many different locations or classes of business,” he said. “That said, we are open-minded, fairly nimble and opportunistic.”