Playing in the reinsurance game is proving a harder slog for hedge fund manager John Paulson with his joint reinsurance venture posting an investment loss of nearly 10 percent of capital.
PacRe Ltd., the $500 million Bermuda-based class 4 reinsurer launched three years ago with Validus Holdings, reported net unrealized investment losses of $45 million in 2014, according Validus’ latest annual 10K filing with the U.S. Securities and Exchange Commission.
The losses were attributed to “Paulson hedge funds held by PaCRe,” the filing stated.
This is the largest loss attributed to PacRe since its 2012 launch. Validus reported “favorable movement on other investments” in 2013 tied to Paulson funds, although it did not detail an exact amount. During PacRe’s first year it reported a $31.3 million net unrealized losses for the final three months of 2012.
Disclosure of the scope of the 2014 losses comes more than a month after rating agency A.M. Best placed PacRe’s A- rating under review with negative implications for “significant unrealized investment losses since inception relating to its alternative asset strategy.”
Although AM Best did not reveal the extent of the losses and complimented the reinsurer positive year over year underwriting results, it added “[The] ratings will remain under review pending further discussions with management concerning the shortfalls in performance and what, if any, actions might be taken, as it regards underwriting and investment strategies going forward.”
Validus exposure to the losses is limited since it hold a 10 percent equity interest in PacRE, with the remaining 90 percent held by third party investors, according to SEC filings.
Paulson & Co. has been struggling lately, with published reports saying that assets under management are less than half of its 2011 peak because of redemptions and investment losses.