Report: Hedge Funds Consider Entering Insurance Underwriting

Hedge funds are increasingly drawn into insurance underwriting business in an ever-ending search for alpha for their investors, according to experts at

New reports show that hedge fund managers have been active in purchasing “catastrophe bonds” through which money is provided to insurers as well as reinsurers when catastrophic events such as hurricanes and earthquakes occur.

According to the report, increasing numbers of hedge funds are participating in reinsuring companies such as, Glacier Reinsurance AG of Schwyz, Switzerland; Bermuda-based CIG Reinsurance Ltd.; and Ritchie Risk-Linked Strategies Ltd., also of Bermuda.

Veteran investor George Soros helped to finance Glacier Reinsurance, which was launched in December 2004. Dallas based hedge fund manager, HBK Investments LP, also helped with the financing of Glacier Reinsurance AG. Robert Bredahl, president of Benfield Inc., the U.S. division of British reinsurance broker Benfield Group Ltd said, “This is not the first time that hedge fund firms have started reinsurance companies.”

Insurance industry analysts believe such trend will grow in light of the declining trading opportunities in the markets. James Vickers, chief operating officer of Willis Re International, a reinsurance firm, believes that such endeavors will help hedge funds diversify their holdings, and also achieve better returns through such asset class which is uncorrelated with their portfolio holdings.

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