One of Bermuda's newest reinsurers, Hampton Re Holdings, is in the process of raising between $100 million to $200 million private placement, according to the Financial Times newspaper.

But the article questions the model under which the company was created, with sources questioning the quality of the insurance underwriting in a company that is selling itself as a hedge-fund vehicle.

The company, which is backed by JP Morgan Chase and has offices in Reid Street, officially opened in June this year after incorporating in March.

The Financial Times report said: "Like Max Re Capital, which recently went public, Hampton Re is a Bermuda-based insurer, which is designed to convert the ordinary taxable gains produced by hedge fund returns into capital gains, which attract a lower tax rate. The companies aim to make money by writing very low-cost insurance business and generating outsized investment returns by putting money into hedge funds."

Max Re went public in mid-August at a lower price than originally intended and offering fewer shares. Since then it has slipped from its offer price of $16 to $14.63.

The FT added: "Despite the fact that a growing number of hedge fund-related companies are setting up Bermuda insurers, several questions hang over the business model."

The article quotes one hedge fund investor who passed on the opportunity to put money into Hampton Re saying he was worried about "the quality of the insurance underwriting in a company that is really selling itself as a hedge fund vehicle".

The article said he was also concerned by the prospect that the US government might decide to close the tax loophole that allows these structures to exist.

It said most of Max Re's investments are in fixed income but a sizeable minority, 47 per cent of its investments, is in hedge funds, adding that that sort of proportion would have been unheard of in a traditional insurance company.

It added: "Moore Capital, the global macro fund whose principals set up Max Re, makes up 11.8 per cent out of the 47 per cent. Moore runs a variety of funds most of which seem to have been very marginally down up to July 31.

Max Re's hedge fund investments were outperformed by the bond portfolio last year."

And it said that Hampton Re's hedge fund portfolio could do better.