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Searchlight and Pine River consider reinsurance start-ups

9 September 2013

Searchlight Capital and Pine River are among a number of investment firms understood to be looking to enter the reinsurance sector using a model similar to last year's hedge fund reinsurer start-ups.

Investor interest in such launches has been buoyed by Third Point Re's recent flotation on the New York Stock Exchange.

Although the John Berger-headed start-up's shares have only traded up modestly in the first few weeks since the $276mn float, the speed with which the company made it to an initial public offering is likely to have validated the model in the eyes of potential investors.

It is not clear how close either Searchlight Capital or Pine River are to a launch, but both firms are known to have sounded out several management candidates for proposed reinsurance ventures.

Searchlight Capital is a relatively new and small private investment firm that operates in North America and Europe. It closed its first fund with total committed capital of $860mn in April last year.

With the hedge fund-style reinsurer model requiring start-up capital in the range of $500mn-$1bn, it is thought that any entry into the sector by the firm would be in partnership with other private equity or hedge fund investors.

Searchlight was founded in 2010 and its launch team includes Erol Uzumeri, who led the global private equity business of Ontario Teachers' Pension Plan - an established investor in the insurance-linked securities (ILS) space.

Uzumeri co-founded Searchlight Capital with former Kohlberg Kravis Roberts & Co partner Oliver Haarmann and Eric Zinterhofer, formerly of Apollo Management.

Minnesota-based hedge fund Pine River Capital, meanwhile, is understood to have engaged with a number of potential management candidates from within the reinsurance executive pool as it looks to launch a Bermudian reinsurer.

The fast-growing firm had $13.5bn of assets under management as at 1 April 2013, up from $5.4bn in January 2012.

Pine River, which was launched by Brian Taylor in 2002, is thought to have talked with other potential investors about the project, including Caxton Alternative Management.

The hedge fund had already signalled an appetite for reinsurance and will begin investing in ILS following the hire of convergence industry veteran Al Selius.

Selius previously ran Swiss Re's ILS trading desk and has also worked for ILS fund Securis and investment bank UBS in recent years.

Although it is not clear how far advanced either initiative is, a launch similar to Third Point Re would likely see start-ups seek an AM Best A- rating and look to build a multi-line low volatility underwriting portfolio to offset greater volatility in a hedge-fund style investment strategy. The hedge fund reinsurance model is seen as attractive for managers, who can achieve the 2 and 20 commission structure at the same time as generating permanent capital. It also offers the advantage of deferral of tax on investment income.

In addition, there is now a proven path towards further capital generation by going public, with Greenlight Re listing in 2007 and Third Point Re going public this summer.

Third Point Re defied jittery US markets to enjoy a solid debut on the New York Stock Exchange and closed last week at $13.19, ahead of its 15 August opening price of $12.25.

The reinsurer also filed its first monthly investment account performance figures on Friday, unveiling a -0.7 percent return for August in a difficult month for investment managers.

It reported a year-to-date return of 14.1 percent - trailing the performance of the S&P 500, which was up 14.5 percent over the period.

This article was published as part of issue September 2013/2

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