GLOBAL - Moves by large pension funds into the reinsurance area could prompt other funds to follow suit, despite only a small handful having already begun scoping out the area as a possible new business venture, according to industry experts.
Recently the e74bn PGGM announced it was considering a foray into the reinsurance business by introducing insurance-linked securities to its portfolio of strategies.
Other large pension funds have in the past made similar soundings - the US$207bn California Public Employees’ Retirement System (CalPERS) looked at CAT Notes, (securities linked to various disasters like hurricanes) five years ago.
But CalPERS spokesman Clark Mckinley said the fund decided “not to put money to work as this was not a fit for our programmes at this time”.
More recently, the e196.3bn Stichting Pensioenfonds (ABP) told Global Pensions reinsurance was “an idea we may look further into” in the future - but Rich Nuzum, worldwide partner at Mercer Investment Consulting, suggested at present many funds would possibly wait to see what others do.
Providing a US perspective, Nuzum said reinsurance was not at present an idea being given a lot of consideration, with some plans opting to invest in publicly traded reinsurers rather than getting directly involved.
However he added: “Things can change. If, for example, ABP or PGGM were to pioneer something, larger pension plans would look into it.”
A Watson Wyatt spokesperson said the firm had heard of some hedge funds seeking exposure to reinsurance markets “because they look very profitable” and added that catastrophe bonds had been around for a while.
“That said, we are not aware of any of our clients seeking this sort of direct exposure to insurance tail risk,” the spokesperson added.
By Damian Clarkson
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