By: Brian Spinelli, Chair of the Investment Committee

We have received some inquiries about how our global reinsurance exposures are impacted by the devastating losses caused by Hurricane Harvey.   The human side of this historic catastrophe is saddening and our employees, clients, friends and family in Houston have been impacted.  Our reinsurance investments will be paying out claims to some degree to help homeowners and business owners rebuild.  Part of investing and behaving like an insurance company requires being stable capital and paying out after a loss.  So far our reinsurance holdings remain positive for the year, but have given back a little over 1% since Harvey hit.  Considering the damage caused, this is well below what we would expect from a hurricane of this magnitude.  Why?  Flooding is causing most of the damage and is largely excluded from standard policies.  Wind is usually the trigger.  There is some exposure to National Flood Insurance Program, but it only pays out above a certain level of loss.  Certain commercial claims – both property and business interruption – are a concern at this point. Our investments will reflect these in the price as more information is made available.

Hurricanes are a meaningful part of reinsurance and these types of events are expected to occur. Insurers and investors charge to take on this risk and overtime expect to keep more premiums than paying out losses. Please remember, this is a long term investment and we stand ready to deploy more capital when losses are much much bigger than Harvey.  Why?  That is when insurers recapitalize, markets harden and premiums go up.  That is the point where returns are well above average and losses are recouped.  Investing in this area requires capital to be there in good and bad.  We can’t be in and out of this area and ever expect to be trusted as stable capital by reinsurers.  So either we act like a reinsurer or we don’t participate in this return stream at all.  The return and diversifying elements of reinsurance haven’t changed and we believe this is a way to continue earning returns when traditional bond markets are stretched.