Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Investment firms bring reinsurance returns to clients via Stone Ridge


The range of large investment management firms and advisors which are accessing the returns of the reinsurance and catastrophe risk market grows all the time, as the profile of insurance linked investments increases.

Large investment firms are flocking to reinsurance linked investment opportunities in their droves as they seek to bring a new diversifying source of return, with a low correlation to wider economic factors to their client base.

One of the newest managers of insurance-linked securities (ILS) and reinsurance linked investment funds is New York based Stone Ridge Asset Management. Stone Ridge has an interesting strategy which sees large, mainstream asset managers taking out big allocations to its funds.

The Stone Ridge reinsurance and ILS funds are operated as mutual funds and it sources the majority of its investment capital through strong links with registered investment advisory and management firms.This gives Stone Ridge access to investors who perhaps cannot access some ILS funds as easily. The large investment managers can take allocations to Stone Ridge’s reinsurance funds and split that allocation within their own strategies or among clients.

This strategy does seem to have given Stone Ridge access to a large pool of capital very quickly, it has grown to somewhere around $1 billion to as much as $1.3 billion under management between its three reinsurance linked investment funds over a very short time.

So it’s interesting to see which large investment firms are taking big chunks of the Stone Ridge reinsurance funds. The latest amended prospectus published last week by Stone Ridge Asset Management shows that some household names are big fans of reinsurance linked investments and ILS funds.

The two main mutual reinsurance linked funds that Stone Ridge operates both have two share classes, offering access to the fund for different levels of commitments. Large mainstream investment firms have taken big allocations to all of these share classes, in both the lower risk Stone Ridge Reinsurance Risk Premium Fund and the higher risk/return strategy the Stone Ridge High Yield Reinsurance Risk Premium Fund.

Big investors in the Stone Ridge Reinsurance Risk Premium Fund include Charles Schwab & Co., with 50.71% of the Class I shares and 52.77% of the Class M, as well as National Financial Services, LLC, with over 20% of each, Pershing, LLC with over 13% of the Class I shares, and TD Ameritrade, Inc. with nearly 6% of the Class I shares and 14% of the Class M.

For the higher risk/return strategy the Stone Ridge High Yield Reinsurance Risk Premium Fund, the same big investment houses feature. Charles Schwab & Co. has 49.14% of the Class I shares and 57.48% of the Class M, National Financial Services, LLC has nearly 25% of the Class I shares and 17.5% of Class M, Pershing, LLC has 12% of Class I and TD Ameritrade, Inc. 6% of Class I and 15% of Class M.

Clearly, with such large allocations, these investment managers/advisers and their clients appreciate the returns possible from ILS and reinsurance linked investments. It demonstrates the growing popularity among more mainstream investors and shows that there is likely a very large pool of capital which could come into the reinsurance market if the right investment opportunities, structured in the right way to attract this capital, exist.

Of course we still need the underwriting opportunities to absorb this capital, but clearly the money is there and interested if the opportunities exist. Should the reinsurance market experience a major dislocation and ILS and collateralized covers prove as attractive under those circumstances as many believe then we could see many more of these types of investment houses bringing capital in to take advantage of the reinsurance linked investment opportunity.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis London 2022 - Insurance-linked securities conference in London

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