The days of hard markets that last for years could have come to an end, according to Dominik Hagedorn, partner at Tangency Capital, a fund investing in the reinsurance sector.
Tangency was launched by Hagedorn along with Michael Jedraszak and Kai Morgenstern, the former chief investment officer at Kiskadee Investment Managers, a Hiscox-owned ILS fund platform, and fund manager at RenaissanceRe’s Medici ILS fund, respectively. Hagedorn was at Deutsche Bank covering the re/insurance sector.
The fund started trading in June 2018 and has raised $265 million, predominantly from pension fund investors, on the back of its 13 month track record. At the start of 2019 it had around $100 million in assets. It is domiciled in Bermuda, with an office in London.
Hagedorn said long duration hard markets are less likely than in the past “because of the increased fungibility of capital in the reinsurance sector.” Opportunistic ILS capital is also likely to be deployed once rates are above target thresholds, he added.
“Many investors prefer a levered approach to the asset class, which we can generate via the balance sheet leverage provided by the re/insurance companies we invest in,” explained Hagedorn.
Tangency proposes an alternative model to the affiliated ILS funds that are common in the market. Affiliated funds are tied to a specific reinsurer, but Tangency believes that creates a potential conflict of interest for investors, who have to trust the manager is acting in their interest, rather than those of the reinsurer.
Affiliated funds also face the risk of extreme losses if the reinsurer it is associated with happens to be highly exposed to an area that is hit by a natural disaster.
By contrast, Tangency maintains relationships with a broad selection of reinsurers to provide a more diversified portfolio of ILS.
Hagedorn said: “We think that investors benefit from a broadly diversified portfolio of reinsurance risks as single events are less likely to have a material impact on performance. By aligning ourselves with a series of reinsurers, we reduce the idiosyncratic risk of one company having been over-exposed to a particular area.”
Many end investors like the idea of aligning themselves with established reinsurers but are not set up to diligence investment opportunities independently, and prefer having a third-party manager build a portfolio of quota shares, Hagedorn said.
“We have the ability and experience to analyse each transaction in the market thoroughly and select the most attractive transactions available,” he added.
Dominik Hagedorn, Tangency Capital, Michael Jedraszak, Kai Morgenstern, RenaissanceRe, Kiskadee Investment Managers, Hiscox