Reinsurance as an alternative continues to appeal to multi-asset funds

by Artemis on November 15, 2013

The appeal of reinsurance and insurance-linked securities (ILS) as an alternative asset class continues to grow among multi-asset fund managers. These funds provide diversified ways to invest across multiple asset classes, and reinsurance is increasingly popular due to its low-correlation.

This article in Money Marketing highlights an investment manager from the asset management firm Premier Fund Managers, who Artemis has written about previously for their liking of investments in reinsurance-linked funds.

Premier Fund Managers are taking an increasing interest in alternative asset classes, as it seeks ways to diversify and find low-correlated returns from alternative assets. Reinsurance is now playing a key part in all of the firms multi-asset funds, with three managed by David Hambridge highlighted in the article.

Premier Fund Managers allocates capital to both the CATCO Reinsurance Opportunities fund, which makes up 2.3% of one and 2.8% of another of the firms multi-asset strategies, as well as the DCG Iris ILS fund which makes up 1.4% of another. These are meaningful allocations to these two listed reinsurance-linked investment funds showing that the more mainstream asset manager is serious about reinsurance as part of its alternatives bucket.

Premier actually increased its holdings in CATCo’s funds shares on the 11th November, growing its allocation by 800,000 shares. This took its total holdings in the CATCo Global Reinsurance Opportunities Fund to over $29m, or 7.04% of the funds shares voting rights.

Hambridge comments on CATCo’s fund in the article; “This fund is made up of a diversified portfolio of reinsurance contracts and insurance-based investments and not only has produced excellent returns for our investors but has done so with very little correlation to equities and bonds.”

Hambridge said that alternatives like reinsurance have been especially useful in the summer of 2013, as they made a positive return when many equities and bonds had fallen in tandem. This the appeal of a diversified play with low correlation to a multi-asset manager. A considerable amount of multi-asset fund portfolio will be strongly correlated to the movements of stock markets and other financial market variables, so having assets which can continue to perform at that time is very attractive.

The managers of multi-asset funds, which are accessible by all classes of investors often through financial advisors, are likely to continue to discover reinsurance, catastrophe risk and ILS as an asset class over the coming years. As the profile of reinsurance-linked funds and ILS funds grows we will increasingly see them becoming part of more mainstream investment opportunities such as this.

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