Premier Asset Management’s multi-asset team aims to benefit from profits in the reinsurance sector through a holding in the CATCo reinsurance opportunities investment trust.
Reinsurance is bought by insurance companies to minimise potential losses on policies by transferring some of the risk to another insurer.
CATCo reinsurance opportunities provides Premier with income and growth through exposure to a portfolio of collateralised reinsurance contracts that are diversified geographically across different types of risk, such as wind, storm and earthquake risk.
Premier says a spate of natural disasters have occurred recently, so reinsurance rates have risen to compensate for the losses incurred by the industry in meeting claims.
CATCo reinsurance opportunities launched in December 2010 but Premier did not buy it until early June.
CATCo was then raising more money through a C-share issue, after events such as the earthquakes in New Zealand and Japan.
Premier investment director, pooled funds, David Hambidge says the best time to access the reinsurance sector is after events have happened. First, because investors ideally do not want to be involved when loss claims have to be met. Second, because reinsurance premium rates then increase, which will benefit investors.
Premier has a small holding in the CATCo fund across its multi-asset funds to act as a diversifier. Hambidge says any stockmarket falls will not have an impact on CATCo’s underlying assets and investors are being paid for the claims that have been made in the past.
He says: “At some point, there will be more claims but the CATCo fund can cope with one or two. If there are more claims than that, it will struggle a bit, but we think it will produce decent returns over time.”