Steven A. Cohen, the billionaire founder of SAC Capital Advisors LP, started a reinsurance company that can invest in his hedge fund, following Daniel Loeb and David Einhorn in entering the business to secure more permanent capital.
SAC Re Holdings Ltd. is being run by Simon Burton and will focus on high-margin catastrophe coverage and casualty protection, the Bermuda-based company said in a statement today. The company’s investments will be managed by SAC Capital, which oversees about $14 billion out of Stamford, Connecticut.
Cohen joins Loeb, the founder of Third Point LLC who started Third Point Re in Bermuda last year, and Einhorn, head of New York-based Greenlight Capital Inc., in creating a reinsurer to help to secure money for his hedge fund that isn’t subject to investor withdrawals. Reinsurers, which help insurers shoulder risk and earn premiums that they invest to make a profit, have benefited from rising prices after record natural disasters last year.
“Third Point and Greenlight are leveraging more of the casualty business,” Burton, chief executive officer of SAC Re, said today in a telephone interview. “We agree that that’s a very compelling plan and it does form about 50 percent of the business that we plan to write. We think the addition of high quality uncorrelated property-catastrophe business is a further, very strong addition to the overall plan.”
The company raised $500 million in a private placement from founding investors including Cohen and private-equity fund Capital Z Partners III LP, which invests in the Bermuda reinsurance market, according to the statement. SAC Capital told investors last year that it sought to raise $500 million for a reinsurance business.
SAC Capital’s main fund has returned 5.2 percent this year through June, according to a person with knowledge of the matter. Hedge funds have returned 0.9 percent in the same period, according to data compiled by Bloomberg.
Banks, private-equity firms and hedge funds have formed reinsurers in the past to take advantage of rising rates after losses from natural disasters. The so-called Class of 2005 reinsurers were formed after storms led by Hurricane Katrina.
Record catastrophe losses last year from the earthquake and tsunami in Japan to flooding in Thailand helped boost reinsurance rates. In the U.S., property reinsurance prices have risen 6.5 percent this year from 2011 as primary insurers changed how they managed risk after last year’s losses, Guy Carpenter & Co. said in a statement today.
Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. (A:US), said in May his firm was taking advantage of increased prices in Asia after last year’s catastrophe losses.
Burton, former deputy chief executive officer of London- based insurer Lancashire Holdings Ltd. (LRE), said some European insurance companies may seek to transfer risk to the new firm as the region’s sovereign debt crisis and new regulations put pressure on capital.
In February, Einhorn’s Greenlight Capital Re Ltd. (GLRE:US) said there are opportunities in Europe as the financial crisis and Solvency II, a set of rules designed to align insurers’ capital reserves with the risks they take, increased demand for their product. Einhorn started his reinsurer in 2004 and began writing insurance a year later.
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