Each participating reinsurer is licensed in Bermuda as a Class 3A or higher insurer or segregated account company or holds a similar license in another respected jurisdiction. Participating reinsurers are often sponsored by alternative asset managers to achieve multiple benefits including permanent capital. These participating reinsurers use a combination of proprietary investment strategies and reinsurance underwriting to generate better returns than a like investment in a fund or managed account with an identical investment strategy.
Participating reinsurers benefit in two ways. The participating reinsurer’s funds are invested with the asset manager following a strategy identical to other investors. At the same time, the participating reinsurer provides low volatility reinsurance, taking in premiums, paying losses and potentially as a result generating float to manage. In this way, the investors receive a more attractive return.
Provided that the investment strategy is profitable and can beat a typical reinsurer’s high grade, short duration fixed income strategy over time, these types of reinsurers have the potential to outperform funds and managed accounts with an identical investment strategy and also to outperform more traditional reinsurers.