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A.M. BestTV: Volatility, Fees Cool Insurers' Ardor for Hedge Funds, Says A.M. Best Associate Director

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In this A.M.BestTV episode, Jason Hopper, associate director,
industry research and analytics, A.M. Best, said insurers have
become more selective in their use of hedge funds. Click on http://www.ambest.com/v.asp?v=hedgefunds918
to view the entire program.

For a second straight year, the insurance industry has pulled back on
its hedge fund investments. Hopper believes hedge fund performance is a
dominant factor.

"Volatility is not an insurer's best friend. Especially when the two
preferred strategies of hedge funds—equity long/short and
multi-strategy— ave been a little volatile this year," said Hopper. "Fee
structures, I think, is the other factor, potentially pushing some
insurers out of the hedge fund space or at the least reducing their
over-allocations to hedge funds."

Hopper also highlighted how A.M. Best is looking at changes in hedge
fund investment strategies.

"Property/casualty and life/annuity insurers' have about 9% of their
hedge fund holdings allocated to distressed security hedge funds. Those
types of funds typically back non-investment grade organizations or
companies that are in bankruptcy or close to default. If the credit
markets make a wider turn toward the negative that would definitely be
something A.M. Best would more closely monitor and analyze," he said.

Recent episodes of A.M.BestTV include:

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  • Captives Tap Reinsurers for Capital, Business and Data Support,
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    captives, which are typically smaller insurance organizations, look to
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. Visit www.ambest.com
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