Hardening prices lure private equity firms to 20% profits
US private equity firms are looking at starting up reinsurance companies, Reuters reports.
It says plans are still in early stages, but private equity firms think they can make 20% profit by starting reinsurance businesses now in a hard market and without the claims from the recent hurricanes..
"Before we used to get calls from hedge funds, but now we're mainly hearing from private equity firms," Reuters quotes Andrew Barile, an insurance consultant in Rancho Santa Fe, California.
Anyone starting a reinsurer from scratch, without payouts to make and investment losses to bear, has a real advantage, Barile said.
Hurricane Ike alone cost the industry $20 billion this year.
After a year like that, Chris O'Kane, chief executive of Aspen Insurance, told Reuters, "there is a near infinite demand for Florida hurricane capacity." Aspen sells both insurance and reinsurance, and was founded in part by Blackstone Group in 2001, during a big wave of private equity investment in reinsurers.
