Appleby is witnessing increasing levels of investment by hedge funds and private equity funds in insurance and reinsurance vehicles as a play to diversify their investment strategies and generate attractive yields.

The catastrophic losses experienced during 2011 including the Christchurch earthquake and the more recent effects of Hurricane Sandy have resulted in increased premiums for insurance and reinsurance products. At the same time, the corresponding large payouts by insurers and reinsurers have caused the withdrawl of less well-funded market participants. Yield hungry investors are now attracted to these sectors.

Investment banks have historically provided capital to insurers and reinsurers. Now, less well capitalised and operating in a tighter regulatory environment, they are hamstrung. Private equity funds and hedge funds have stepped in.

Hedge funds, which up until now have been active in capital markets reinsurance instruments, are now also seeking to invest directly into the market by setting up or acquiring reinsurance companies. SAC recently launched SAC Re, a Bermuda based reinsurance company that underwrites worlwide property and casualty reinsurance business.

Private equity funds are also homing in on insurance and reinsurance assets. A number of private equity funds have established specialist financial institution groups to evaluate investment in both private and public insurance companies, many of which are trading at a discount to their book value.

The Appleby Insurance team has advised a number of leading private equity and hedge fund players looking to invest in these insurance vehicles. Examples of recent deals that Appleby has advised on include:

  • Acting for CVC Capital Partners, in connection with the acquisition of a majority stake in Cunningham Lindsey, the world's largest global loss adjusting and claims management firm; and
  • Acting for Flexpoint Ford, LLC in its acquisition, by way of a statutory merger in the Cayman Islands, of GeoVera Insurance Group Holdings, Ltd., the provider of specialty residential property insurance.

Bermuda and the Cayman Islands remain the offshore jurisdictions of choice for doing business in the insurance and reinsurance sectors and Appleby, with its unique global footprint, is perfectly positioned to service this niche area. In addition, the Cayman Islands continues to have close ties with the hedge fund industry, being the world's leading domicile for hedge funds.

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