The first trickle of new post-Japanese earthquake capital has entered the reinsurance market, giving yet another indication that the soft market is coming to an end.

Bermuda-based insurer Alterra Capital Holdings has announced the establishment of a so-called “sidecar” in conjunction with US private equity firm Stone Point Capital.

The new sidecar will have up to $US200 million ($191 million) in capital to provide property catastrophe reinsurance capacity.

The sidecar – an independently capitalised insurance vehicle used by investors who have capital but not underwriting expertise – is called New Point IV.

Each company has committed to invest up to $US100 million ($95.5 million) in the venture.

“Given the recent series of global catastrophic events, which have had the effect of reducing the capital supporting the international property catastrophe reinsurance market, we believe that this is a very timely addition of capacity,” Alterra President and CEO Marty Becker said.

Alterra was formed out of the merger last year of two Bermudian insurance businesses, Harbor Point and Max Capital.

The move strengthens the likelihood of a hardening reinsurance market, with private equity providers typically seeking a healthy return on invested equity.

Catlin CEO Stephen Catlin told insuranceNEWS.com.au that capital providers typically demand a 35% return on equity, while in 2010 returns were “only on par with or marginally above the cost of capital” at 10-12%.

He says if new capital floods the market the potential for rates to jump sharply before falling away is increased. “To get that kind of return it would be the kneejerk reaction event,” he said.