Hedge Fund Money Is Reshaping a 180-Year-Old Insurance Model

Alternative investment managers are pouring unprecedented sums of money into the market for property cover, and reshaping a 180-year-old reinsurance model in the process.

Allocations to catastrophe bonds and other insurance-linked securities popular among hedge funds and institutional investors rose 18% to reach a record $136 billion last year, according to data provided by broker Aon Plc. That rise in alternative capital and “its influence in the broader reinsurance market is growing because of the record growth in catastrophe bonds,” Aon told Bloomberg.

The shift promises to alter the face of a market whose basic role is to provide ...