The rapid growth of hedge funds and private investors in catastrophe reinsurance is raising questions about the sector’s long-term stability, according to a report by the Financial Times citing Munich Re board member Stefan Golling.
Hedge funds, family offices and specialist managers have increasingly deployed capital into the $115bn alternative reinsurance market – up from $93bn in 2022, per Aon – through catastrophe (cat) bonds, insurance-linked securities (ILS) and sidecars. Big names including Elliott Management have moved into the space, seeking uncorrelated returns and double-digit yields.
But Munich Re, the world’s largest reinsurer, warns that hedge fund participation could amplify volatility. Unlike traditional reinsurers, Golling said, private capital often lacks deep underwriting expertise and could retreat abruptly after a major loss event. Such a withdrawal risks driving up premiums and disrupting availability of cover, particularly for large-scale natural disasters.
The risks were foreshadowed in 2022, when Hurricane Ian hit Florida just as renewals began. Several private players pulled back amid uncertainty over potential losses, stressing the market and pushing up prices across both traditional and alternative channels.
Hedge funds’ preference for rare, high-payout events such as megastorms, rather than more frequent risks like hail, has also drawn scrutiny. While private capital is helping to meet rising global demand for disaster cover amid climate change and inflation, Munich Re argues that the selective approach could destabilise risk-sharing if capital proves flighty in the face of losses.
