Paulson Reinsurer Sells Few Policies In First Year

Apr 29 2013 | 3:12pm ET

A partner of Paulson & Co.'s reinsurer has dismissed charges that the business is merely a tax shelter.

New York-based Paulson set up Pacre last year with Bermuda reinsurer Validus Holdings. Pacre, which received US$500 million in initial funding—invested in Paulson's hedge funds—collected just US$11 million in premiums in the year-ended March 31, or 2.3% of shareholders' equity. According to Bloomberg News, the average ratio for publicly-traded Bermuda reinsurers in 68%, and Paulson's fellow hedge fund reinsurers also underwrite much more coverage that Pacre. Greenlight Capital Re's ratio was 53%. SAC Re targeted premiums of 30% and Third Point Reinsurance 19%.

Despite those figures, Validus CEO Ed Noonan told Bloomberg that the idea that Pacre is merely a tax dodge is "nonsense." According to Noonan, Pacre specializes in extremely unlikely natural disasters, which makes its premiums small but its risk large. Pacre posted no insurance losses in its first year.

"Pacre takes on a lot of risk underwriting the business," Noonan, whose own firm's coverage ratio was 48% in its first year, said. "We also take on a lot of risk in the investment portfolio, much more so than other insurers or reinsurers. You can't take on that much risk on both sides of the balance sheet and write the type of premiums that you would write in a traditional reinsurer."

Noonan added that Pacre's capital is necessary to meet regulatory requirements and maintain its financial-strength rating.


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