Research by tax, assurance, advisory and transactions firm Ernst & Young (EY) suggests that more asset managers will launch reinsurance firms in an attempt to leverage reinsurance premiums as a source of capital.
The report stated that “hedge funds are increasingly investing in the reinsurance business as a means for innovation and diversification in the rapidly growing convergence space”.
EY found that the hedge fund-owned reinsurance start-ups it analysed have been a success. The benefits to asset managers include increased liquidity, tax advantages and increased leverage.
The report pointed out that within a reinsurance company, initial capital plus the addition of premium income can help hedge funds to outperform funds with similar portfolios and strategies.
