Four Reasons Institutional Investors Should Consider Reinsurance
Table of Contents
Toggle- 1. Forward modeled returns remain competitive with most fixed-income-oriented alternatives 2.“True” low correlation 3. Liquidity 4. Tail risk relative to other asset classes and strategies Conclusion
Property catastrophe reinsurance, also marketed as insurance linked strategies (ILS), is a hedge fund strategy that many of the largest pension, sovereign wealth, and endowment funds have exposure to and there are 4 reasons other institutional investors should consider the strategy.
1. Forward modeled returns remain competitive with most fixed-income-oriented alternativesWhen evaluating reinsurance as a strategy, forward-looking modeled returns are more important than historical returns. Reinsurance returns are heavily influenced by current market pricing relative to expected catastrophe losses and the amount of capital required to assume those risks.
The probability of hurricanes, earthquakes, and other natural catastrophes is relatively stable over long periods. What changes materially is the price investors receive for assuming that risk.
The history...
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