(Reuters) - Add John Paulson to the list of hedge fund managers sticking a toe into the reinsurance business, in his case via a deal with reinsurer Validus Holdings.

Validus said on Wednesday a new company, PaCRe Ltd, had been formed with an initial capitalization of $500 million to write reinsurance, which insurance companies use to backstop portions of their risk.

Validus put up 10 percent of that capital and will underwrite the company's policies, collecting a commission based on its profits. The source of the rest of the capital was not immediately clear.

Paulson & Co will manage PaCRe's investment portfolio, Validus said in a statement. Wall Street firms have traditionally been attracted to the reinsurance business in part from the fees to be gained on managing investments.

Paulson's step into the business is less aggressive than those of his peers, many of whom have set up and funded reinsurers to profit from both the underwriting side of the business and portfolio management operations.

Dan Loeb's Third Point LLC set up a reinsurer called TP Re, while Steve Cohen's SAC Capital has set plans to open up SAC Re. They followed on the model of David Einhorn and his Greenlight Capital Re Ltd.

(Reporting By Ben Berkowitz; Editing by Steve Orlofsky)

Register or login for access to this item and much more

All Digital Insurance content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access