Many hedge funds have tried to emulate the Berkshire Hathaway "insurance float plus asset manager" business model. Firms like Third Point, Greenlight and Highbridge have set up insurance vehicles to generate float and invest it in a hedge fund strategy.
S&P Global released a report commenting critically on the performance of this increasingly crowded field.
“The allure of a crossover between hedge funds and reinsurers continues to offer enticing possibilities,” S&P say in its new report, “The Rubber Meets the Road for Hedge Fund Reinsurers,” but “the multibillion-dollar question remains, How viable and sustainable is the HFR model?”
Such reinsurers generally engage in “low-margin and low-volatility (property/casualty) reinsurance business,” and try to generate returns for investors through hedge fund investment or other strategies.
Thus far, however, they “have yet to generate an underwriting profit and their overall operating results continue to lag those of the traditional Bermudian reinsurers,” the S&P report said.
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