A.M. Best: Hedge Funds Losing Insurance Companies as a Capital Source

Posted on 06/01/2020

In a report by A.M. Best Company, Inc., a U.S.-based credit rating agency for the insurance industry, they said that U.S. insurers for a fourth straight year reduced their hedge fund investments, to US$ 12 billion in 2019 from US$ 25 billion in 2015. A.M. Best said that hedge fund holdings went from 1,500 positions to about 900. Only 10% of A.M. Best’s rated universe invests in hedge funds. Long/short equity dropped by US$ 2 billion and multi-strategy dropped by US$ 600 million in 2019. Private equity is about 9% up in 2019, as well as commercial mortgage loans remained popular. However, Hopper in a video interview, sees the commercial mortgage loans to get a hit a little harder.

“Over the years, hedge funds have become a little less attractive compared with some other investments, given the returns,” said Jason Hopper, associate director, AM Best in a press release. “Returns haven’t been favorable enough to meet the high fees, as well as the regulatory capital stream imposed by capital charges. … Not only is book adjusted carrying value declining, but the number of holdings have declined as well.”