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Alternative Market Briefing

Insurance industry investments in hedge funds continued to increase over last two years but reverse over last quarters

Wednesday, November 09, 2016

Komfie Manalo, Opalesque Asia:

A special report by insurance ratings firm A.M. Best starts out with the known premise that insurers have limited choices for investing new dollars from maturing securities and new business premiums to maintain targeted risk-adjusted returns without a meaningful increase in interest rates.

The report titled, "A.M. Best Hedge Fund Performance Has Insurers Reducing Exposure," pointed out that with interest rates remaining persistently low, NAIC Schedule BA assets, which include alternative investment securities, have generally provided insurers with the potential for higher risk-adjusted returns to help mitigate the decline in higher portfolio book yields. This industry trend toward modestly higher allocations to non-traditional asset classes is likely to continue.

Despite some public pullbacks by large life insurers, total insurance industry investments in hedge funds have continued to increase over the last two years. Hedge fund holdings within the life/annuity (L/A) segment have grown from $11.4bn in 2013 to $14.2bn in 2015, while the property/casualty (P/C) segment has increased its holdings from $8.9bn to $10.2bn. In light of these trends, L/A asset allocations to hedge funds have increased from 7.6% to 8.5% between 2013 and 2015—the ......................

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