Hedge fund reinsurer
A reinsurer, often domiciled in Bermuda or the Cayman Islands, whose premiums and capital are managed by a hedge fund, the model seeking to combine underwriting profit with high investment returns.
A conventional reinsurer invests most of its assets in bonds, so that its investments remain safe and liquid in the face of claims. The hedge fund reinsurer reverses this logic: it entrusts its assets to an alternative manager, often its founder, who invests them in an equity, credit or event-driven strategy, hoping for a much higher return. To keep total risk manageable, these companies have often favored long-tail but low-volatility underwriting, such as quota shares on liability or motor risks, rather than natural catastrophe. The model assumes that the fund consistently beats the market, and that asset losses and underwriting losses do not strike together. Several of these reinsurers disappointed, with erratic investment returns and mediocre underwriting results, and ended up reducing the fund's weight or merging with traditional reinsurers.
Greenlight Re, founded in 2004 in the Cayman Islands by fund manager David Einhorn, and Third Point Re, set up in 2012 in Bermuda by Dan Loeb, embodied the model; Third Point Re merged in 2021 with reinsurer Sirius to form SiriusPoint.
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