As I read through these sentences in the curriculum, I feel a little bit confused.
“An attractive and uncorrelated return profile may be achieved if by making such reinsurance investments a hedge fund can do the following: 1) obtain sufficient policy diversity in terms of geographic exposure and type of insurance being offered; 2) receive a sufficient buffer in terms of loan loss reserves from the insurance company; and 3) receive enough premium income.”
About the second condition, I don’t know what is “loan loss reserve” in this situation mean. If it is loss reserve, it would be much more understandable since the loss reserve is a part of orginal premium income then when the insurance company transfer premium income (and also risks) to the reinsurer, they also have transfer the loss reserved set abide. However, it’s LOAN loss reserve. I totally can’t get this point.
Please help me! Thanks in advance!