Bermuda-based Max Re Capital, a reinsurer that invests heavily in hedge funds, may adjust its investment portfolio this year in order to underwrite riskier reinsurance, chairman and chief executive Robert Cooney has said.
Newswire service Dow Jones reported that Max Re is unusual in that it is one of several offshore reinsurers that normally underwrites relatively low-risk reinsurance while taking bigger chances with the money it puts aside to meet liabilities.
While reinsurers typically allocate most of their investment portfolios to bonds, Max Re invests a large portion of its assets in hedge funds managed by Moore Capital Management.
Ironically, Dow Jones said, the bond side of Max Re's portfolio has been outperforming its hedge-fund investments lately.
Earlier this week, the firm reported that its net income for the year to 31 December 2001 fell to 8 cents per share, from 36 cents per share a year earlier, as strong growth in reinsurance premiums offset more modest returns on its investment portfolio.
Dow Jones said the company was now contemplating shifting the mix of its investments in order to take on more underwriting risk in its property and casualty reinsurance portfolio.
Cooney said: "Right now in the property and casualty business, you are getting paid a lot to take on a little risk."
He added that Max Re would take the appropriate steps to reduce the risk in its investment portfolio by a commensurate amount, but did not indicate how this would be accomplished.
"We will always adjust the investment portfolio if we take on more underwriting risk, in order to keep the enterprise risk the same," he said.
