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Alternative Market Briefing

Other Voices: Is this the time to consider Reinsurance for a diversified hedge fund portfolio?

Wednesday, October 04, 2017

Matthias Knab, Opalesque:

From Donald A. Steinbrugge, CFA:

Most institutional investors understand the uncorrelated, diversification benefits of property catastrophe reinsurance. Many have been waiting on the sidelines for a large event to happen that would drive up pricing before allocating to the strategy. The two big questions these investors ask are, "Is pricing going up?" and "Has the probability of hurricanes increased?"

Will pricing on property catastrophe reinsurance increase?

2017 has the potential to be the costliest year for the reinsurance industry on record, even worse than 2005 when the reinsurance industry was impacted by hurricane Katrina, Rita and Wilma. Applied Insurance Research (AIR) Worldwide estimates that losses from Hurricane Maria could add between $40 billion and $85 billion to the insurance industry losses from recent catastrophes. When added to the devastation of Hurricane Harvey and Irma along with recent earthquakes in Mexico, losses could be as high as $165 billion based on AIR estimates of all events.

Insurance companies typically assume the initial losses from major events and purchase reinsurance to cover losses above a threshold. The most recent events will likely have a disproportionately large impact on reinsurance, compared to others in the insurance industry, as they trigger aggregate losses which exceed those thresholds

Prices for reinsurance are impacted by supply and dema......................

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