In a world where while asset prices are rising the outlook remains uncertain with volatility lurking, wealth managers at US Bank, the fifth-largest commercial bank in the United States, have again spotlighted reinsurance and insurance-linked securities (ILS) as potentially valuable diversification for investors at this time.Providing its investment outlook for the fourth-quarter of 2025, the US Bank team paints a picture of a world that can be dizzying for investors, with “voluminous and wide-ranging” news flow potentially confusing, but still an expectation that markets may have further to run at this time.But, they noted that diversified investors have been rewarded as asset prices generally rose and the power and importance of diversification within portfolios is highlighted again and again in the US Bank quarterly outlook.In the fixed income universe, bonds continue to be seen as a “critical ingredient of diversified portfolios despite moderating yields.” But the bond universe is growing and US Bank spotlights reinsurance as one interesting area for investors to turn.

“Compelling yields across the bond market create opportunities to diversify current income sources with exposures to unique bond categories,” the outlook explains.Stating that, “Strong issuer fundamentals support elevated corporate bond valuations, while municipal bonds offer compelling value for highly taxed individuals.Structured credit and reinsurance also present enhanced yield opportunities and solid fundamentals for qualified investors.” In those unique bond categories, reinsurance is seen as one, such as via catastrophe bonds.

On reinsurance and ILS investments US Bank states, “Reinsurance pays more than 10% annual income to compensate for natural catastrophe damages.“Reinsurance can provide a meaningful and unique return stream for portfolios, since natural catastrophes occur independently of economic cycles that tend to influence traditional asset returns.” Investors are using hedge funds to diversify their portfolios as well, with an increasing turn to alternative investments to balance exposure to public securities, US Bank says.In fact, hedge funds have demonstrated a lower correlation the Bank states, which of course also encompasses the ILS fund manager category, where investors can access those reinsurance returns through a managed strategy, rather than direct fixed income investments.

Finally and also of note for ILS, US Bank points to the opportunities multi-strategy hedge funds can present, in offering geographic and asset class diversification baked in for allocators.As our readers will be aware, multi-stray hedge funds are also increasingly turning to catastrophe bonds and other forms of ILS or reinsurance-linked investments, so now investors can also access reinsurance returns as a component of the portfolio returns of some of the largest multi-strat hedge funds.US Bank offers investment advice and management for clients, ranging from retail, through high-net worth, to large corporate allocators, so it’s notable that it continues to recommend reinsurance investments as an attractive area for its clients to focus..

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