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Alternative Market Briefing

Insurers reduce hedge fund exposure

Friday, May 22, 2020

Bailey McCann, Opalesque New York:

For a fourth straight year, the U.S. insurance industry reduced its hedge fund investments. Insurers pulled out $2.6 billion in 2019, bringing total exposure to $11.9 billion, according to new research from AM Best.

The continued pullback leaves the property/casualty insurance segment with $6.3 billion of hedge fund investments. The life/annuity segment (L/A) saw a fourth straight year of reductions, cutting back by 11.9% in 2019 to $5.1 billion. The health segment's holdings also ticked down by roughly $100 million to approximately $490 million; however, hedge fund holdings are concentrated, as fewer than a dozen health insurers invest in this asset class. The report notes that the 2019 declines occurred despite the hedge fund industry posting a return of more than 11%, just the second time industry returns have exceeded double digits in the last six years.

"Many insurers continue to say they are not getting the returns needed for the fees and capital requirements costing them in the current environment," says Jason Hopper, associate director, industry research and analytics, AM Best Rating Services.

Insurers weren't the only institutions cutting back on hedge fund allocations in 2019. Investors pulled more than $97 billion out of hedge funds last year citing performance and fee concerns. Insurers primarily cut allocations to long/short equity hedge funds and multi-strategy funds.

Larger insurers were more likely to......................

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