MAY 20, 2020 11:19:40 Eastern Daylight Time

Best’s Special Report: Insurers Continue to Reduce Hedge Fund Exposures

 Jason Hopper
Associate Director,
Industry Research and Analytics
+1 908 439 2200, ext. 5016

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - MAY 20, 2020 11:19:40 Eastern Daylight Time
For a fourth straight year, the U.S. insurance industry reduced its hedge fund investments, by $2.6 billion in 2019 to $11.9 billion, with the property/casualty segment reporting a year-over-year reduction of 22%, the largest among the major industry segments, according to a new AM Best special report.

The Best’s Special Report, titled “Insurers Continue to Reduce Hedge Fund Exposures,” states that the continued pullback leaves the property/casualty segment with $6.3 billion of hedge fund investments. The life/annuity segment (L/A) saw a fourth straight year of reductions of more than 10% (11.9% in 2019 to $5.1 billion). The health segment’s holdings also ticked down by roughly $100 million to approximately $490 million; however, hedge fund holdings are concentrated, as fewer than a dozen health insurers invest in this asset class. The report notes that the 2019 declines occurred despite the hedge fund industry posting a return of more than 11%, just the second time industry returns have exceeded double digits in the last six years.

Insurers’ hedge fund investment trends have followed the broader market, according to the report, as more than $97 billion in total hedge fund asset flows were pulled back in 2019. Companies rated by AM Best account for nearly 96% of the U.S. insurance industry’s total hedge fund holdings. Additionally, hedge funds are held predominantly by larger organizations, 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, 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.”

Insurers continue to modify their hedge fund investment strategies, with some notable changes in 2019. They 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%. Multi-strategy also saw a decline of over $600 million, though it remains one of the two top options for all segments.

Higher-rated insurers generally have the capital and expertise to better absorb risk. AM Best will continue to monitor trends in hedge funds, as well as insurers’ alternative investments.

To access the full copy of this special report, please visit .

To view a video discussion with Hopper about the report, please go to .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.