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Can Reinsurance Exposure Provide Uncorrelated Alpha?

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Chief investment officers love to talk about finding uncorrelated assets. Sovereign funds and pensions like Australia’s Future Fund, the New Zealand Superannuation Fund and the Pennsylvania Public School Employees’ Retirement System seek risk-adjusted returns, especially if it springs from an uncorrelated source. Insurance-linked securities (ILS) are gaining traction as a viable asset class for institutional investors. Catastrophe reinsurance can provide investors opportunity with taking risk and getting paid for it. Insurance companies like AIG are in the business of serving clients and pricing risk. Often times, these insurers need to offload risk and reduce exposure to potential catastrophes. By having reinsurance, insurers can expand capacity.

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Generally speaking, insurance-linked securities are not fully correlated with the larger financial markets. For institutional investors, a unique mindset is necessary when contemplating ILS strategies. For example, reinsurance loss does not present major upsides. The only news is bad news; investors need to get a grasp on how much they have to pay for bearing downside risk. Fresh investors to the ILS market typically hire an experienced ILS fund manager to access reinsurance exposure. Generating sources of alpha is related to information asymmetry. The fragmented reinsurance market and complex layers of coverage provides pricing differences and market inefficiencies. Experienced ILS managers may have access to relationships and information flow in this opaque market.

Largest Insurance-Linked Fund Managers – Ranked by Name

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Follow the Money – Episode 45

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This longer-than-normal episode covers a wide range of issues including such as sovereign wealth funds, bitcoin, cryptocurrencies, Indian real estate, ESG, investment exclusions, central banking and more.

EPISODE 45

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The views in this media are expressed by Michael Maduell and other participants and are not reflective of the Sovereign Wealth Fund Institute (SWFI).

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CalPERS Board Elects Priya Mathur as Board President

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The board of the California Public Employees’ Retirement System (CalPERS) elected Priya Mathur as board president. The current president Rob Feckner was named vice president of the board. Feckner previously served as board president and vice president.

Priya Mathur is serving her fourth term on the CalPERS Board of Administration. Mathur is a principal financial analyst for Bay Area Rapid Transit District (BART). Mathur represents public employees on the CalPERS Board, which she joined in 2002. She currently serves on four committees: Governance, Investment, Pension & Health Benefits, and Risk & Audit. She chairs the Pension & Health Benefits Committee and is vice chair of the Governance Committee.

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Oman SGRF Contemplates $1 Billion Infrastructure Fund

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Oman’s State General Reserve Fund (SGRF) is in discussions on forming a US$ 1 billion infrastructure fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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