Unfulfilled promises means time of reckoning for hedge fund reinsurers: S&P

A time of reckoning will come very soon for many reinsurers backed by hedge funds as many remain unprofitable and with many promises unfulfilled, according to a new report by S&P Global Ratings.

The rating agency says that while these players “will continue to evolve” and “nibble at the edges of the reinsurance market” it will also become apparent that the “rubber meets the road for HFRs over the next few years as so many promises remained unfulfilled”.

The report, called ‘The Rubber Meets The Road For Hedge Fund Reinsurers’ examines the question of how viable and sustainable the HFR model is as more hedge fund reinsurers continue to enter a soft and overcrowded property/casualty reinsurance market.

It notes that over the past few years, several start-up hedge fund reinsurers mainly domiciled in Bermuda have entered the overcrowded P/C reinsurance market despite weak business conditions, while others were unsuccessful and fled. Hedge fund reinsurers have yet to generate an underwriting profit and their overall operating results continue to lag those of the traditional Bermudian reinsurers, the report notes.

"We believe that sponsored HFRs have typically outperformed stand-alone HFRs and are better placed at least to break even from an underwriting perspective. We continue to view the HFR business model as generally more sensitive to earnings and capital volatility than traditional reinsurers," said S&P Global Ratings credit analyst Taoufik Gharib.

Get the latest re/insurance news sent to your inbox every day -  Sign up to our free email newsletters

Today’s stories

Ariel Re deal helps boost growth in Argo’s Q2 results

Generali sells another LatAm unit as it seeks transformation into a ‘simpler company’

Federated National decreases its reinsurance spend in Q2

Aon to acquire Unirobe Meeùs Groep from Aegon

Recovery in major economies boosts Tokio Marine’s results

Risk of flood high in Japan in wake of Typhoon Noru

Don't miss our insurtech email newsletter - sign up today