Hedge funds are proving to be steady investment vehicles for some insurers, particularly after financial market instabilities during the coronavirus pandemic, A.M. Best said in a new report.

In fact, P/C insurers and life/annuity insurers grew their hedge fund exposure by nearly 6 percent in 2020, A.M. Best noted, which translates into another $690 million in holdings.

Broken down, the P/C segment expanded its exposure by 5.5 percent, to $6.6 billion, after several years of declines. Life and annuity insurers raised their dollar exposure to hedge funds by 5.8 percent, to $5.4 billion, A.M. Best said.

One of the reason hedge funds became a standout: the hedge fund market didn’t fall as far as the public markets did in 2020, and it also recovered more efficiently and quickly. A.M. Best noted that hedge funds also have good risk diversification and a low correlation to other asset classes.

The hedge fund industry lost approximately $44.5 billion in asset flows in 2020, but that’s an improvement as it is nearly half the amount pulled out in 2019, according to statistics cited by A.M. Best. Asset flows were also positive under both multi-strategy and equity strategy allocations, with additions of $9.5 billion and $2.9 billion, respectively. Both investment options were most popular with insurers, A.M. Best said.

At the same time, as A.M. Best pointed out, the number of insurers’ hedge fund holdings continued to decline in 2020, but the book-adjusted/carrying value grew for the first time since 2015.

A.M. Best’s full report is “Hedge Funds Remain an Option for Some Insurers.”

Source: A.M. Best

Topics Carriers Auto AM Best