Forbes – Hedge funds are fueling a new frenzy of investment in the property catastrophe reinsurance industry as the Atlantic hurricane season heads into its busiest months.
One of the biggest brokers, Marsh & McLennan‘s (nyse: MMC – news – people ) Guy Carpenter, estimates that catastrophe bond issuance in 2006 could be double that of 2005, when a record $2 billion of bonds were sold.
And insurers have embraced so-called sidecar agreements as a way to underwrite more business without pumping up their balance sheets. Since November, well more than $3 billion of hedge fund money has been sunk into sidecars, which are separate, limited purpose companies that share the risks of certain policies with the underwriter in exchange for a portion of the premiums. The investors stand to make double-digit returns, or lose everything.
