Where Others Flee Storms, Ross Rushes In

In the aftermath of Hurricane Katrina in 2005, premiums for this kind of coverage soared, and remain above pre-Katrina levels. Mr. Ross sees opportunity in that, and is now upping his own bets.

His corner of the market is "reinsurance" -- the business of selling insurance to other insurance companies that want protection against massive claims. After investing $125 million last year in companies that specialize in this kind of coverage, he recently pumped millions of dollars into a start-up reinsurance company, Panther Re Bermuda Ltd.

Mr. Ross, a part-time resident of hurricane-prone Palm Beach, Fla., has made a mint by spotting opportunity where others see danger. The man who earned millions on steel mills in the Rust Belt could lose millions in Sun Belt disasters. If big storms hit (as they did in 2005), firms that his company has invested in could be on the hook to insurers paying customer claims for damaged homes, destroyed cars and the like. If major storms don't hit (as was the case in 2006), he and his co-investors could make bundles.

Mr. Ross acknowledges the risk. "What we are betting on is that the perceived risk exceeds the actual risk. That's fundamental to the theory of everything we do," he said in a recent interview in his Manhattan office. On the wall hung a copy of a 2003 magazine article headlined, "Is Wilbur Ross Crazy?"

One of Mr. Ross's insurance investments already looks like it's paying off nicely. Last spring, his firm bought $100 million of shares in Montpelier Re Holdings Ltd., a Bermuda reinsurer, for $14.50 a share. He took a seat on the company's board. On Friday, Montpelier shares closed at $17.81, a 23% jump, meaning he'd be up about $23 million if the shares were sold at that price.

Mr. Ross became a bankruptcy specialist at Rothschild Inc. He left the firm in 2000 and formed WL Ross & Co. LLC, which bought up ailing steel mills. In 2004, he sold International Steel Group and netted a $260 million profit.

He says the differences between his steel investments and his insurance investments aren't great. "Coming into steel when steel prices are at a level below the price at which people can afford to make it is the same thing as coming into insurance" after insurers have incurred billions in losses, and premiums have climbed sharply, he said.

Insurers paid out roughly $80 billion in claims from major hurricanes in 2004 and 2005. State Farm, the largest insurer of cars and homes in the nation, says it lost $9.2 billion alone. If another massive storm hits a place like New York City or Miami, or a major earthquake rocks San Francisco, insurer bills will soar.

That helps explain why premiums for disaster coverage rose drastically after Katrina hit in August 2005 -- more than doubling in some cases in hurricane-prone areas.

The price increase caught Mr. Ross's attention. As some shocked investors pulled out, he sought a way to get in, "since our mission in life is to try to go into things where there's a lot of trouble," he said.

One of his first moves was putting $25 million into a company called Blue Ocean Reinsurance Ltd. that was created to sell reinsurance after Katrina, in partnership with Montpelier.

Mr. Ross became impressed with Montpelier and with its read of the market: Early last year, the company thought insurance premiums should be higher, and prices did in fact rise through the spring.

"We didn't need the cash," said William Pollett, Montpelier's treasurer. But the firm saw an opportunity to use the money, because demand for reinsurance was so strong.

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