An App to Explore Insurance Risk Diversification

A main motivation for investing in insurance risk is to diversify a portfolio. However, with insurance risk being an opaque asset class, it's not easy to find data on the effectiveness of this diversification. With the below tools, Riskvest uses the publicly available data to compare insurance risk to other asset classes to see how it performs.

The data backing the tool represents a broad benchmark of asset classes, including equities (S&P 500), bonds (VCIT Corporate Bonds), commodities (Gold), and Risk-Free (1-Year Treasury Bonds). CAT Bond returns are sourced from the Swiss Re CAT Bond Index.

Selecting a single equity or bond to compare to insurance risk is not representative of a diversified portfolio. Hence, common indices such as the S&P 500 and VCIT Corporate Bonds are used to represent the performance of these asset classes. Similarly, it's important to note that the Swiss Re CAT Bond Index is a benchmark for all CAT bonds, not a single investment. Investment in a single CAT bond would be much more exposed to complete loss.

The Sharpe ratio is a measure of risk-adjusted return. It is calculated by subtracting the risk-free rate from the expected return and dividing by the standard deviation. The risk-free rate used is the return of a 1-Year Treasury Bond. Higher Sharpe ratios mean you're getting more return per unit of risk.

The interactive portfolio allocation tool below allows you to explore how different weightings between two assets would have performed over the past 20 years. You can see both the total return progression and the drawdown analysis to understand risk characteristics.