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Reinsurance firm stops writing new business

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AQR Re Management Ltd is to wind down its operations after three years in business as a result of the reinsurance industry's “consolidating market dynamics”.

Some people will consequently lose their jobs at the firm, which works out of offices at 3 Bermudiana Road, Hamilton, as the firm stops writing new business. But some will remain to oversee the run-off business.

AQR Re is affiliated with Greenwich, Connecticut-based investment adviser AQR Capital Management, which had $122 billion of assets under management as of the end of 2014.

“The fundamentals of the reinsurance industry have changed significantly since AQR's entrance into the business in 2011,” a spokesman for AQR Capital Management said.

“While the diversification benefits and relative returns of reinsurance as an asset class remain attractive, we have come to the conclusion that due to consolidating market dynamics, it will become increasingly difficult to put larger amounts of capital to work to achieve attractive risk-adjusted returns for our investors, and ever more important to be in multiple lines of business, many of which we are not currently in.

“Accordingly, we have decided to wind up the AQR Re business and will cease writing any new or renewal business after April 1.”

AQR Re's portfolio comprises about $440 million of assets under management, of which about $400 million is from outside investors. The spokesman said that each of AQR Re's two funds had been profitable.

“We are pleased that AQR's reinsurance business has performed consistently across both of its funds, having provided investors with annualised net returns of 4.7 per cent and 15.8 per cent respectively, since inception.

“We thank chief executive officer John Lummis, chief underwriting officer Martin Vezina, chief actuary Lester Pun and the entire reinsurance team for their dedication and contributions to the firm.”

The spokesman did not specify how many people worked in the Bermuda office, but said “a core team of employees will remain to oversee the run-off business”.

AQR Re's reasons for winding down its business reflect the wave of consolidation sweeping through the industry. In Bermuda, RenaissanceRe has acquired Platinum Underwriters Holdings, while mergers of XL Group and Catlin Group, and Axis Capital Holdings and PartnerRe have also been agreed.

A growing consensus among reinsurance leaders suggests that scale is a significant competitive advantage in today's market.

Lower-than-normal catastrophe activity in recent years, as well as a surge of “alternative capital” pouring into the reinsurance industry in the form of insurance-linked securities have led to a decline in rates, most markedly in property-catastrophe lines.

At the same time, low interest rates are squeezing returns on the reinsurers' investment portfolios.

Reinsurers are responding to competitive pressures by merging with each other.

The convergence between the capital markets and the reinsurance industry continues to happen. As reported in the Business section of yesterday's The Royal Gazette, global insurer Ace Ltd and BlackRock, the world's biggest money manager, are seeking to raise between $800 million and $1.3 billion for new Bermuda-based reinsurance venture ABR Reinsurance Capital Holdings Ltd.

AQR Re: Winding down its operations, based in this Bermudiana Road building (Photo by Nicola Muirhead)
AQR Re: The Bermuda firm is to wind down its operations

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Published March 23, 2015 at 3:13 pm (Updated March 23, 2015 at 7:16 pm)

Reinsurance firm stops writing new business

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