WHERE THERE ARE healthy returns to be made, there will be a hedge fund manager lurking nearby, and the insurance industry has been no exception. With hedge funds predominantly playing the insurance-linked securities area of catastrophe bonds, hurricanes Katrina, Rita and Wilma (KRW) in 2005 sparked a new means of gaining exposure to the insurance market for managers. Desperate for capital to meet losses, reinsurers were forced to turn to hedge funds to make up the shortfall, and the door to participating directly in the insurance market was opened. Almost half of the $12 billion in capital raised towards meeting the KRW losses is estimated to have come from hedge funds.
The significant returns on offer encouraged hedge fund managers not only to take direct exposure to insurance through joint ventures with reinsurers in sidecars but, in some cases, to go as far as setting up their own separate reinsurance...
