New reinsurer Rockridge Re may seek to raise additional capital to make the most of a surge in demand for high-layer catastrophe reinsurance in the wake of Hurricane Katrina.

Hedge fund manager West End Capital Management, a Bermuda company, and Bermudian reinsurer Montpelier Re formed Rockridge Re in the Cayman Islands in June with $90.9 million of capital. The company was set up to offer retrocessional coverage solely to Montpelier Re, giving the reinsurer the capacity to write attractive high-layer, excessof- loss contracts in peak catastrophe zones, such as Florida, California and Japan. But after Hurricane Katrina, which looks set to be one of the costliest storms ever, Rockridge Re may seek additional capital. It may also offer retrocessional coverage to other reinsurers.

?A couple of months before January, Montpelier Re will take a look at what is out there and we will probably raise more capital at that point because there will be a larger renewal pool,? said Brenton Slade, director of business development at West End Capital Management. ?It could be $150 million or $200 million, depending on the opportunities and the pricing that will be in the market.? The reinsurer is unlikely to have a lot of competition from other hedge-fund-backed reinsurers on higher layers because most of them write lower layers of catastrophe coverage. Its main competitors for higher-layer business will be Bermudian reinsurers IPCRe, RenaissanceRe and PXRe.

Rockridge Re received its licence in May and wrote some catastrophe contracts in June and July, the first half of the Atlantic hurricane season. Mr. Slade previously told its portfolio is not exposed to losses from Hurricane Katrina because it did not underwrite any risks in Louisiana, Mississippi or Alabama.

?We and other hedge funds like this business because the catastrophe market is not correlated with traditional markets such as fixed-income and equity markets,? he said of offering reinsurance for catastrophes that are one-in-100 year events. ?If you compare this business to highyield or junk debt, for example, the risk-adjusted returns are just as attractive, but the risk of default is much lower.?Typically, pricing becomes more attractive after an event such as Hurricane Andrew or September 11. If it were not for these large occurrences happening, the pricing and demand for catastrophe coverage would be much lower.?Mr. Slade continued: ?You hate to say it, because it is such a tragedy on a human scale, but in the wake of such large events there have been large-scale formations of new reinsurers to provide capacity and take advantage of the pricing.? West End Capital Management is no stranger to reinsurance. Mark Byrne, its chairman, is a former director of both White Mountains Insurance Group and Markel Corporation, and the son of former White Mountains chief executive and Montpelier Re chairman Jack Byrne.

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