A growing number of hedge funds have been storming into the business of reinsurance in recent months, especially in Florida and the Gulf of Mexico region, hoping to cash in on highly demanded but little supplied property catastrophe reinsurance, The New York Times reports.
Reinsurance is the business of providing insurance to insurers, and the business has seen a growing interest among insurance businesses faced with massive demand for property insurance in the region ravaged by Hurricane Katrina one year ago. And with hurricane season well underway in the Atlantic, the play by hedge funds into the real of reinsurance could prove an interesting one.
Since Katrina, more than $23 billion in capital has been raised for new and existing reinsurers, with hedge funds and private equity firms manning the helm with investments in the business topping out at more than $10.9 billion.
The move by hedge funds into reinsurance does not surprise many industry analysts because the insurance industry can justify raising premiums in the wake of a one-in-100 hurricane season. But as the odds of another one-in-100 season decrease, the insurers stand to make big gains.