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Re/insurers continue to reduce hedge fund exposures: AM Best

29th May 2020 - Author: Matt Sheehan

The US insurance industry has continued to reduce its hedge fund investments for a fourth year straight, according to AM Best.

investmentThe rating agency reported that hedge fund investments were reduced by $2.6 billion to $11.9 billion in 2019, with the property and casualty segment reporting a year-over-year reduction of 22%.

Analysts noted that the continued pullback leaves the P&C segment with $6.3 billion of hedge fund investments.

The life and annuity segment similarly saw a fourth straight year of reductions of more than 10%, dropping 11.9% in 2019 to $5.1 billion.

The health segment’s holdings also went down by roughly $100 million to approximately $490 million, although hedge fund holdings are concentrated, as fewer than a dozen health insurers invest in this asset class.

But insurers’ hedge fund investment trends have followed the broader market, as more than $97 billion in total hedge fund asset flows were pulled back in 2019.

Additionally, hedge funds are held predominantly by larger organisations, with more than 85% of holding held by companies with $1.25 billion or more in capital and surplus.

“Overall, rating units that reduced their holdings did so by almost $2.9 billion, while those that increased did so by $1.0 million,” said Jason Hopper, associate director, industry research and analytics at AM Best Rating Services.

“Many insurers continue to say they are not getting the returns needed for the fees and capital requirements costing them in the current environment.”

Also of note, insurers substantially pulled back from long/short equity hedge funds, with book-adjusted carrying value declining by nearly $2 billion, the largest pullback.

The health segment all but eliminated its exposure, while the life/annuity segment reduced its exposure by 56%, and the property/casualty segment by 36%.

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