The argument would be that it's uncorrelated to traditional stocks and bonds. Modern portfolio theory would suggest that the only free lunch in investing is through diversification. If you can reduce your risk, increase your return, or both, then it theoretically is a worthwhile investment. This is something that was highly popularized by the "Yale model" for having many different sources of unique return.
From a layman's sense, reinsurance is a unique source of return because premiums are collected and the risk shows up due to things that have nothing to do with the economy such as natural disasters, etc. After all, why would a natural disaster or some other insurable risk be significantly correlated to anything? We can probably assume it's correlation is close to 0.
Now whether an interval fund that offers this is worth investing in is hard to say. Not something that I fully understand and whether the fee or not is justified, but I think the general attitude is I'm not going to pay 1%+ for something that I don't understand. I could be convinced if there's a rock solid argument that the risks are being priced accurately, most of that is being returned to me as the investor in the form of the premiums being collected, the net return after fees is worth the risk, and there aren't other hidden costs eating away at my expected returns, but that's a lot of work for me to get on board.
From a layman's sense, reinsurance is a unique source of return because premiums are collected and the risk shows up due to things that have nothing to do with the economy such as natural disasters, etc. After all, why would a natural disaster or some other insurable risk be significantly correlated to anything? We can probably assume it's correlation is close to 0.
Now whether an interval fund that offers this is worth investing in is hard to say. Not something that I fully understand and whether the fee or not is justified, but I think the general attitude is I'm not going to pay 1%+ for something that I don't understand. I could be convinced if there's a rock solid argument that the risks are being priced accurately, most of that is being returned to me as the investor in the form of the premiums being collected, the net return after fees is worth the risk, and there aren't other hidden costs eating away at my expected returns, but that's a lot of work for me to get on board.
Statistics: Posted by tarantula13 — Fri Oct 18, 2024 1:06 am