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00:31
“Hedge fund reinsurers” under attack, but do people know what they are talking about?. “Hedge fund reinsurer” a misnomer and poorly understood. Why tax is only a tertiary or fourth level benefit. 70 to 80 SEC registered asset managers have set up reinsurers over the last decades.
04:35
Recap: Why are asset managers setting up reinsurers?. 1. Investors get better returns than investing in a fund or SMA: If a manager can compound at least 5% over 5 years horizon, the reinsurer will outperform. 2. If the reinsurer goes public, investors are likely to enjoy a premium to book value. 3. Post-IPO, investors have daily liquidity. 4. Tax benefit for taxable investors. But against the benefits of higher ROI and premium to book value, tax benefits are only 28%. Tax benefit is thus ancill
08:52
5. Asset managers can significantly increase AUM from sources that are otherwise not available to them: - Private equity funds. - Mutual funds. - Other hedge funds. - Pensions, endowments, trusts and insurance companies which otherwise may be restricted to invest directly in hedge funds. - Individual investors. … but all these investors are able to invest in a reinsurer whose assets are managed by a good hedge fund manager. Up to 80% of the assets of a reinsurer run by an asset manager can come
12:07
Recap: Why are asset managers setting up reinsurers? (continued). 6. Asset managers obtain permanent capital. - Lack of permanent capital typically impairs hedge fund returns tremendously. - Life cycle of a typical hedge fund is 3.5 to 4 years, less than professional athletes. Permanent capital keeps you in business. 7. Fees can be deferred and take them out as capital gains. 8. The best way to monetise an asset management business is to be acquired by the insurance company.
15:03
What S&P and the FT missed when writing “hedge fund reinsurers are not viable”. - Reinsurers set up by asset managers don’t need an S&P (credit) rating, but they get good to excellent AM Best ratings on their ability to pay claims.
17:31
Are hedge fund reinsurers really “lousy underwriters”?. - Where S&P ignores the time value of money. - Why high “combined ratios” can be a sign of quality, prudence. - Why hedge fund reinsurers mostly follow a “frequency business”. - Lies damned lies and statistics: The time frame makes all the difference.
24:44
The Underwriter’s Dilemma: When being cautious is not rewarded. The moral hazards of insurance reporting.
28:04
Different confidence curves are behind massive variation differences of insurers. Why Taussig likes Captive Insurers: Making a business out of self-insurance. - When is it better for a corporation to set up a captive insurance company?.
32:39
Buffett, living in a glasshouse, shouldn’t throw stones: —> Greenlight Re. and Third Point Re. each write more dollars of premium per dollar of equity capital than Berkshire Hathaway, and they have more dollars of reserves per equity.
35:22
Do Hillary Clinton and Senator Wyden understand insurance accounting?.
40:13
Insurance broker Willis said US insurance risk pricing has eroded by one third over the last 4 years. Contagion: Taussig estimates price erosion in the severity business is up to 75%. How Catastrophe bonds and ILS have destabilised severity risk pricing: Writing 25-30m of premium per employee versus 1.5m.
44:09
How to deal with this price erosion?. 1. Focusing on business with far less moral hazard. 2. Acquiring insurers whose pricing is much less affected. 3. Writing highly structured contracts for capital relief (Solvency II).
47:04
The five ways reinsurers can be set up: 1. Acquisition - high execution risk, moral hazard. 2. Stand alone startup - execution risk. 3. Sidecar - very complex & difficult to execute. 4. Taussig’s Multi Strat Platform - reduces execution risk, outsourced, less capital intense model. 5. Enterprise Risk Captive - reinsurance business can start gradually.
53:09
Enterprise Risk Captives: Easy entry for asset managers into the insurance business. Affiliated Re: Offers solutions to take on third party risk. Benefits for asset managers to run an Enterprise Risk Captive.

“Hedge fund reinsurers” face criticism, but is it warranted?

Jul 20 2016 1 Comment
Joe Taussig is one of the most accomplished experts on insurers and reinsurers which invest their assets in alternative investments, also known as “hedge fund reinsurers”. He was instrumental in the creation of Greenlight Re, Third Point Re, and SAC Re, among many others. Joe believes the term “hedge fund reinsurer” is a misnomer and poorly understood. He also believes that attacks on hedge fund reinsurers regarding their tax structure miss the point that tax is only a tertiary or fourth level benefit. Joe estimates 70 to 80 SEC r ...more

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