Daniel Loeb, the founder of Third Point LLC, started a reinsurance company that can invest in his $8 billion hedge fund, joining rival David Einhorn in seeking more permanent capital.
Third Point Re, which is based in Bermuda, hired John Berger as chief investment officer and has about $500 million in capital, according to two investors familiar with the plan. New York-based Third Point wants to raise $250 million to $500 million more and plans to eventually sell shares of the reinsurer to the public, said the investors, who asked not to be identified because the firm is private.
Loeb follows Einhorn, head of New York-based Greenlight Capital Inc., in creating a reinsurer as a way to raise capital for his hedge fund that isn’t subject to client redemptions. Reinsurers, which help insurers shoulder risk, earn premiums that they invest to make a profit.
“We believe that the combination of Third Point’s longstanding exceptional asset management returns, Mr. Berger’s standout underwriting track record, and a reinsurance market that may improve following multiple events in the past 12 months make it a promising time to launch Third Point Re,” according to a letter sent yesterday to Third Point investors.
Third Point raised capital from private-equity investors Kelso & Co. and Pine Brook Road Partners LLC, along with Loeb and insurance executives, including Berger, according to the letter.
Berger has almost three decades of experience in the reinsurance business, according to the letter. He was previously president and founder of Chubb Re Inc. and was most recently the chief executive officer of reinsurance for Bermuda-based Alterra Capital Holdings Ltd.
Reinsurance rates are likely to rise after natural disasters this year. Earthquakes in Japan and New Zealand and flooding in Australia contributed to more than $70 billion in insured losses in the first half of the year, according to a report from Guy Carpenter & Co., the reinsurance brokerage of New York-based Marsh & McLennan Cos. That may help reverse the price declines in recent years, said Kevin Lee, vice president and senior credit officer at Moody’s Investors Service.
“The general sentiment is that rates are going to migrate up on a nominal basis,” said Lee, in a telephone interview. Prices have declined worldwide in four of the last five years on fewer losses, according to the Guy Carpenter World Property Catastrophe Rate on Line Index.
Class of 2005
Warren Buffett’s Berkshire Hathaway Inc., the largest U.S.- based reinsurer, has said it has the capacity to write more business when rates rise. The company has limited the volume of reinsurance it sells because of pricing in recent years, according to regulatory filings.
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 Hurricane Katrina and other storms caused record industry losses.
Einhorn started his reinsurer in 2004 and started writing insurance a year later.
Third Point’s plans were reporter earlier by Reuters.