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Hedge fund backing offers reinsurers aggressive capital base

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MONTE CARLO, Monaco — John Berger has been attending the Rendez-vous de Septembre for years, but he came with a new purpose to the 2012 gathering.

The longtime reinsurance executive, who helped launch F&G Re 1983 and launched Chubb Re in 1998, now heads hedge-fund backed reinsurer Third Point Reinsurance Ltd., which launched in January.

Third Point Re is one of a handful of hedge fund-backed reinsurers that have launched in the past few years, including Greenlight Capital Re Ltd. in 2004 and SAC Re Ltd., which launched this year.

As a result of its backing by New York-based hedge fund Third Point L.L.C., the Bermuda-based reinsurer is taking a different approach to business than most traditional reinsurers, Mr. Berger said. Rather than taking significant risk on the underwriting side, Third Point will take most of its risk on the investment side by pursuing an aggressive investment strategy.

Unlike many reinsurers in Bermuda, Third Point will not write property catastrophe business. Instead, it will concentrate on lines such as workers compensation, Florida homeowners quota share reinsurance, nonstandard auto and crop coverage, Mr. Berger said. Typical cedents are smaller insurers that need reinsurance backing to write their business, he said.

The strategy should allow the reinsurer to operate differently than many competitors, he said.

“How do you grow underwriting today? It's very competitive, so analysts want you to give back capital (to shareholders). But our capital is fully deployed on the investment side,” he said.

The aggressive investment strategy, which contrasts with the conservative investment strategy of most reinsurers, could lead to other products, Mr. Berger said.

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“Companies are earning no money on their investments now, so maybe we could design products where they share in investment income,” he said.

Third Point has $800 million in capital and an A- rating from A.M. Best Co. Inc. To reassure cedents that might be concerned that Third Point is taking too big a risk on the investment side, Mr. Berger said the reinsurer will limit its premium writings to what a reinsurer with only about $550 million in capital would write. As a startup, Mr. Berger said the company expects to write about $140 million in premiums in 2012.

The company also sees potential to grow in the London market and is taking on Clare Himmer, formerly of Allied World Assurance Co. Ltd. in Bermuda, to open a London office. Ms. Himmer will be a managing director of Third Point Re and officially starts on Nov. 1.

The London office will seek to access business with predictable cash flow and predictable volatility, which could include U.K. auto coverage, Mr. Berger said.