The emergence of hedge-fund-backed reinsurers in Bermuda

Hedge funds have cottoned on to the benefits of Bermuda’s reinsurance market, with many establishing their own start-ups.

Described as the ‘Little Wall Street of the World’, Bermuda is one of the largest jurisdictions for insurance and reinsurance. More significantly, it is the reinsurance capital of the world, with a substantial number of insurance-related entities calling the island home. This insurance gem boasts an aggregate capital and surplus valued at $185bn, with total assets calculated at $524.7bn in 2011.

Recently, a new phenomenon has been taking the Bermuda reinsurance market by storm. Hedge funds, which until now have mostly chosen to invest indirectly into the insurance and reinsurance markets through insurance-linked securities structures or by investing in the equity of holding companies operating reinsurance business, have been establishing their own reinsurance companies. As a result, start-ups such as Third Point Re and PaCRe emerged in 2012 as competitors to the more traditional insurance models…

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