Hedge Funds Gaining Favor Among Insurers

NEW YORK (HedgeWorld.com)–The insurance industry is ripe for hedge fund managers to grab a bigger chunk of its investment assets, according to a new study by Swiss Re America Holding Corp.

Competition is forcing insurers to ask themselves if they or a third party can best maximize the risk and return tradeoff for their investment assets, according to a report on the study, called “Third Party Asset Management for Insurers.” As a result, the insurance industry is turning increasingly to third party asset managers. Hedge funds, in particular, are attractive targets for that movement, Swiss Re said. “It’s the same story as for other types of investors,” said David S. Laster, senior economist for Swiss Re. Insurers, while not historically a big player in hedge funds, are warming up to the idea of putting some of their assets into hedge funds, he said.

And like other institutions, they’re doing so only when greater transparency becomes available, and when they can fit into portfolios from a risk management perspective, he said. Smaller insurers are likely to outsource their entire investment portfolio, but large insurance companies are more likely to outsource only for its more esoteric investments, such as hedge funds.