A.M. BestTV: Volatility, Fees Cool Insurers' Ardor for Hedge Funds, Says A.M. Best Associate Director

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FOR IMMEDIATE RELEASE

OLDWICK - AUGUST 29, 2018 08:46 AM (EDT)
In this ^A.M.BestTV episode, Jason Hopper, associate director, industry research and analytics, A.M. Best, said insurers have become more selective in their use of hedge funds. Click on http://www.ambest.com/v.asp?v=hedgefunds918 to view the entire program.

For a second straight year, the insurance industry has pulled back on its hedge fund investments. Hopper believes hedge fund performance is a dominant factor.

“Volatility is not an insurer’s best friend. Especially when the two preferred strategies of hedge funds—equity long/short and multi-strategy— ave been a little volatile this year,” said Hopper. “Fee structures, I think, is the other factor, potentially pushing some insurers out of the hedge fund space or at the least reducing their over-allocations to hedge funds.”

Hopper also highlighted how A.M. Best is looking at changes in hedge fund investment strategies.

“Property/casualty and life/annuity insurers’ have about 9% of their hedge fund holdings allocated to distressed security hedge funds. Those types of funds typically back non-investment grade organizations or companies that are in bankruptcy or close to default. If the credit markets make a wider turn toward the negative that would definitely be something A.M. Best would more closely monitor and analyze,” he said.

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^A.M.BestTV covers exclusive A.M. Best and insurance industry information and reports, targeted topics and key developments in the insurance, reinsurance and related sectors daily. Sign up for alerts of episodes at http://www.ambest.com/multimedia/ambtvsignup.html. View A.M.BestTV episodes at http://www.ambest.tv. .

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry.