Bermuda reinsurer Validus Holdings is teaming up with celebrated hedge fund manager John Paulson to launch a new Class 4 Bermuda reinsurance company.Validus tonight said that PaCRe will be funded by $500 million of contributed capital, which the new company will start to deploy for the June 1, 2012 renewal season.Mr Paulson’s New York-based company, Paulson & Co, will manage PaCRe’s assets, while Validus will carry out the underwriting.Paulson & Co is the latest hedge fund to become involved in Bermuda’s reinsurance industry, following Daniel Loeb’s Third Point and Steven Cohen’s SAC Capital Advisors, who have each set up reinsurers on the Island in recent months.Validus has invested $50 million in PaCRe’s common equity. Validus Underwriting Services Ltd will underwrite business for PaCRe for which it will be paid a profit commission based on the company’s underwriting results.In a statement tonight, Validus said PaCRe was formed “to combine the attractive returns available from underwriting top layer reinsurance programmes with a long term approach to asset management”.Mr Paulson gained fame when he made $3.5 billion in 2007 by short-selling sub-prime mortgage-backed securities as the US housing market crashed. Some described it as the greatest trade ever. In 2010, he made $5 billion.But last year, he was humbled by the markets as his flagship Paulson Advantage fund sank 35.91 percent net of fees and Paulson Advantage Plus was down a whopping 50.67 percent after fees.Paulson & Co has approximately $24 billion in assets under management and has offices in New York, London and Hong Kong.Tonight, rating agency AM Best assigned a financial strength rating of A- to PaCRe, with a stable outlook.“The ratings of PaCRe are based on its excellent risk-adjusted capitalisation, experienced underwriting led by Validus Reinsurance Ltd. and prudent business plan,” AM Best said in its commentary.Best added that it had concerns about the possibility of PaCRe being exposed to both an asset event along with an underwriting event that could have an adverse effect on risk-adjusted capital.The rating agency added: “In addition, AM Best anticipates that PaCRe will be challenged by already established reinsurers as well as other alternative investment reinsurers entering the market.“The addition of more capacity into an already overcapitalised reinsurance marketplace could pressure underwriting margins.”