Reinsurers — firms that insure the insurers— are in trouble, Goldman's Brian Nannizzi says. Mainstream reinsurance firms evaluate risk based on things like capital intensiveness or a company's risk-adjusted return profile. But totally unrelated firms like Berkshire Hathaway have now entered the market.
"We believe third-party investors evaluate [property-catastrophe] returns in the context of their overall portfolio and are willing to accept lower returns than the traditional reinsurers, as these instruments provide non-correlated returns that enhance their overall portfolio’s return profile," Nannizzi writes.
Source: Goldman Sachs