SAC Re plans to be a reinsurance company with a difference.The hedge fund-backed firm, which opened its doors for business earlier this month, will employ a non-traditional business model that, according to chief executive officer Simon Burton, will better serve investors.Steven Cohen’s US hedge fund SAC Capital Advisors will manage the firm’s assets, while the underwriting team in Bermuda writes reinsurance business.Traditional Bermuda reinsurers have tended to manage their assets very conservatively, with portfolios dominated by fixed-income investments, to counteract the big underwriting risks they take in the volatile catastrophe reinsurance business.Mr Burton, a former deputy CEO of Bermuda-based Lancashire Holdings, said SAC Re’s structure allows for a better spread of risk across both sides of the balance sheet.“We are, as an industry, getting a message from our investors that they’d to see reinsurance transacted in a different way,” Mr Burton told The Royal Gazette.“For some time I’ve been thinking about a different model that improves on the overall risk profile of a reinsurance company by moderating on the reinsurance risk we take and pairing it with an extraordinarily high quality asset manager on the other side of the balance sheet.“I was introduced to SAC about 15 months ago and they were thinking about a similar plan.”While the public perception of hedge funds may be of high-risk investors taking big bets, Mr Burton said that SAC did not fit that mould.“The fact is that I see the risk profile from SAC as quite moderate compared to the broader perception of the hedge fund business,” he said.“They put a great deal of emphasis on the quality of their return and not absolute return. If we look at our balance sheet as a whole — the reinsurance exposure paired with uncorrelated returns from SAC — my view is that we have an aggregate risk profile that, in many ways, is lower than many of our peers in Bermuda.“The public perception may be that your typical hedge fund might put 30 percent of the fund in gold and cross their fingers for three months. That’s absolutely not the case with SAC.“I think one of the reasons SAC and I got on so well was my reputation and ability for managing risk and their risk management processes being extremely strong.”Other US hedge fund managers have also entered the Bermuda resinraunce market this year. Daniel Loeb’s Third Point is involved with start-up Third Point Re, while PaCRe is a joint venture between John Paulson’s Paulson & Co and Bermuda reinsurer Validus Holdings.SAC Re is currently based at a temporary home in Victoria Hall but is set to move to a new home in the Bermuda Commercial Bank building in Par-la-Ville Road in September. It has six employees and is looking to build up the workforce to around 20 within the next year.Mr Burton’s colleagues include chief financial officer Jonathan Reiss, former insurance leader at the Bermuda offices of accountancy firm Ernst & Young.“We’re at a point in the cycle where we’re not seeing the same start-up flow as we saw in 2001 or 2005, but it’s a great time to be building a team,” Mr Burton said. “We’ve taken a great deal of care in the hiring process and I think we’ve assembled an exceptionally strong team for SAC Re.”Mr Burton has lived in Bermuda since 1993 when he came to the Island as an actuarial consultant for Tillinghast (now known as Towers Watson). In 1996, he joined Ace, where he worked for 10 years in the structural products unit. In 2006, he joined post-Katrina start-up Lancashire and headed the group’s Bermuda operations. The start-up phase is something he relishes going through once more with SAC Re.“It’s a very exciting time, the greenfield process of starting from scratch,” he said. “You have a much greater ability to control the culture, the operational footprint, things that are critical for any company and which set the tone for their future.”He felt his own combination of experience in both the actuarial and underwriting fields was a strength.“I think the days are past when a reinsurance company can staff itself by very traditional underwriting personnel,” he said. “The way we can get ourselves into trouble is to ignore the need for a deeply analytical process.“That’s not to say that everybody needs to be an actuary, but more and more these days you see reinsurance underwriters who also have an actuarial background. It was rare 15 years ago, it’s much more common today. I think that’s a good thing for our industry.”Bermuda had emerged a clear winner in the domicile selection process, Mr Burton said. The main reasons were the depth of the talent pool, the established marketplace and the strong regulator. “I don’t see other domiciles that offer a similarly compelling opportunity for us,” Mr Burton said.SAC Re will write a mix of property-catastrophe reinsurance and long-tail casualty reinsurance, both of which were chosen to be complementary to its asset management strategy.“The property-cat is uncorrelated, in general, to the investment strategy and the casualty is complementary by way of being flow-generative, which enables us to leverage the high-quality investment returns,” Mr Burton explained.Mr Burton sees property-catastrophe reinsurance pricing at a healthy level, while the casualty market is tougher. “There are early signs of improvement in casualty rates, but we feel we’re able to derive an economic opportunity throughout that cycle, whereas others may not,” he added.