Reinsurance is often called “insurance for insurers.” When a homeowners’ primary insurer wants to limit the hit from a major hurricane or earthquake, it gives a slice of its portfolio to a reinsurer in exchange for a premium. A reinsurance fund allows you to sit alongside those reinsurers and collect a share of those premiums. The goal is straightforward, gather more in premiums than are paid out in claims. And even better, produce returns that do not move in lock step with stocks or bonds.
Below are some details on how the reinsurance investment works.
How the Fund Takes Risk
Reinsurance funds get exposure in two ways. Either by buying quota share contracts, pro rata stakes in reinsurers’ global property catastrophe books, or by buying catastrophe bond. Because capital devoted to catastrophes is scarce, premiums remain attractive. Even after a modest dip at this year’s Florida renewals, industry pricing is still near the highs reached in 2023-24, while underwriting standards remain tight. In other words, investors today are being paid well for taking carefully modeled weather risk.
Seasonality and Premium Accrual
Catastrophe risk is highly seasonal. Roughly half of the annual reinsurance premium is earned during the heart of Atlantic hurricane season, August through October, when expected losses are greatest. Think of it as being compensated most richly when the risk dial is turned up.
Headlines can make hurricane season feel ominous, yet the historical data tell a calmer story. Between 1991 and 2024 the Atlantic averaged 15 named storms per year, but only seven strengthened into hurricanes, two made U.S. landfall, and just one every other year generated more than $10 billion of insured loss. This dynamic of many storms, but few truly damaging ones, is one reason reinsurers have historically come out ahead.
Seasonal Forecasts Are Poor Predictors
Pre-season forecasts from leading meteorological labs may dominate financial news, yet they explain almost none of the variation in insured losses. Stone Ridge’s thirty-year regression shows correlations close to zero for April and June forecasts and only modest explanatory power even in August, when some storms have already formed.
How the Fund is Priced
Should a hurricane threaten an area with high property values, the fund’s daily NAV (Net Asset Value) will already reflect the best actuarial estimate of loss. If the storm veers away, the mark bounces back, and if it stays on course, the NAV is written down in advance, avoiding nasty “surprises” after landfall. This mark to model approach is essential in an asset class where reported claims can lag the event by months.
Portfolio Role and Key Risks
Because payouts depend on the weather, not on GDP growth or Fed policy, reinsurance returns have shown very low correlation with traditional markets, making it a useful diversifier. That said, catastrophe risk is real and occasionally lumpy. Reinsurers rely on sophisticated probabilistic models that simulate thousands of potential events to size each position and the overall portfolio.
Putting It All Together
Reinsurance investing is ultimately a bet that, over many seasons, global catastrophe premiums will exceed losses. For investors seeking a differentiated source of return, and who can tolerate occasional weather-driven drawdowns, reinsurance offers a compelling complement to stocks and bonds.
PAST PERFORMANCE IS NOT A GUARANTEE OF CURRENT OR FUTURE RESULTS. Examples of historical information included in this presentation do not, nor are they intended to, constitute a promise of similar future results. Specific client portfolio allocations, risks and returns can and may deviate from these examples depending on accounts and types of investments available through each account. Future market views by WJ Interests, LLC may vary significantly from the historical examples presented herein and no one receiving this summary should assume that WJ Interests, LLC will be able to replicate successful views in the future.