UK investors put $100 mln into new reinsurance fund

LONDON Tue Dec 4, 2012 6:15am EST

LONDON Dec 4 (Reuters) - British equity investors have put $100 million into a new reinsurance fund, the latest example of mainstream investors seeking exposure to the sector's rising prices and relative immunity from financial shocks.

Blue Capital Global Reinsurance Fund, set up by Bermudan reinsurer Montpelier Re, raised the cash through a listing on the London Stock Exchange's specialist fund market, it said on Tuesday.

Blue Capital plans to make money by selling reinsurance to primary insurers, putting up its own cash as collateral to absorb potential claims.

It is offering shareholders annual returns of 6 percentage points above the London Interbank Offered Rate (LIBOR), the average rate at which banks lend to each other.

Some investors are attracted to the reinsurance sector because costly natural disasters including Hurricane Sandy are expected to push up reinsurance prices when policies are renewed next year.

The industry is also seen as relatively insulated from economic and financial slumps as demand for reinsurance generally holds up well during recessions.

"We expect the upcoming January 1st renewals to present us with a number of excellent opportunities to start deploying our capital," Blue Capital chairman John Weale said in a statement.

Reinsurance funds such as Blue Capital offer exposure to the sector without buying shares in listed reinsurers, which are mostly trading below asset value due to lingering suspicion of financial stocks following the 2008 crisis.

Investors seeking to bypass the stock market have also been setting up their own reinsurance vehicles and buying specialist securities such as catastrophe bonds, which offer an income in return for agreeing to pay some of an insurers' claims if a hurricane or earthquake strikes.

Hedge fund managers Dan Loeb, Steve Cohen and John Paulson have all set up reinsurance companies in the past year, and Dutch pension fund PGGM, with some $152 billion under management, said in May it was putting more cash into catastrophe bonds.

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