Carriers
Agecroft makes the case for property reinsurance as an institutional asset class
By Insurance Wire Staff, . Insurance Wire.
Agecroft Partners, the hedge fund consulting and marketing firm, has published a detailed argument for why institutional investors should treat property catastrophe reinsurance as a standalone asset class, according to Artemis, which covered the piece by Agecroft founder and CEO Don Steinbrugge.
The core of Steinbrugge's argument is that the conventional view of reinsurance tail risk has it backwards. "Reinsurance is commonly caricatured as attractive returns sitting on top of an unquantifiable tail. The caricature has it backwards," he writes, as quoted by Artemis. His point is that property catastrophe reinsurance is one of the few asset classes that can present a full exceedance probability curve before an investor commits capital, including the 1-in-100 year loss scenario. Equities, credit and hedge fund strategies all carry comparable tail risk, Steinbrugge argues, but that risk is undisclosed rather than modeled.
On the recovery dynamic, Steinbrugge makes a structural argument that distinguishes reinsurance from other alternatives. A large loss year withdraws capital from the market, tightens capacity and raises pricing, so that the years immediately following a major event tend to offer the best-priced opportunities. "Equity and credit drawdowns require a market to change its mind. Reinsurance drawdowns are repaired by a supply response that follows from the loss itself," he is quoted as saying. Artemis illustrates this with the post-Katrina cycle: pricing rose sharply after 2005, attracted institutional capital, which then compressed margins through roughly 2016, after which below-average returns drove capital out again and reset pricing higher, producing the strong returns seen in recent years.
On current pricing, Steinbrugge acknowledges that the market has softened from its most attractive levels but puts forward modeled returns in the high single digits to low double digits as reasonable estimates for appropriately structured property catastrophe portfolios. He benchmarks these against the 10-year Treasury yield, which he places below 5%, and BBB-rated corporate bonds at roughly 100 basis points above that. The comparison is designed to make the risk-adjusted case for reinsurance over conventional fixed income.
The correlation argument is the one that deserves the most scrutiny from allocators. Steinbrugge contends that the uncorrelated nature of reinsurance returns is structurally durable rather than an empirical artifact, because loss outcomes are driven by physical events, not by discount rates, credit spreads or investor sentiment. "That is a far more durable foundation than a low observed correlation coefficient, which is an empirical artifact that can and does break," he is quoted as saying. That is a meaningful distinction, though it is worth noting that the piece does not address basis risk within ILS portfolios or the degree to which collateralized reinsurance structures can introduce liquidity constraints that complicate the diversification story in practice.
Agecroft also highlights the reinsurance renewal calendar as a source of predictable liquidity, with a substantial portion of portfolios maturing around year-end and another significant portion at mid-year. The firm argues this gives investors dry powder to exploit dislocations elsewhere without being forced sellers of other positions.
The piece is, at its core, a marketing argument from a firm whose business is raising capital for alternative managers, and readers should weigh it accordingly. That does not make the underlying points wrong, but it does mean the case is being made by a party with a direct interest in institutional flows into the asset class. No official reports establish how Agecroft's current manager recommendations are positioned, which specific ILS managers or structures it favours, or how the argument holds up against the softening in catastrophe bond spreads that the market has seen over the past year. Those are the questions a serious allocator would need answered before treating this as actionable.
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