The reinsurance business is rapidly growing in size and popularity as investors are attracted to the return potential and risk diversification that this asset class can deliver. Total issuance of catastrophe bonds has tripled over the past five years, which has some investors worried that the traditional 16% annual returns of the asset class may no longer be achievable. Berkshire Hathaway owns some of the largest companies in this industry and their chairman and CEO, Warren Buffet, has recently complained that the industry is becoming a ‘fashionable asset class.’ Buffett has good reason to be worried, as markets have a history of disrupting industries where profits are too high for the amount of risk that’s being taken. History shows us the power that markets have had on real estate as an asset class, as well as others such as high yield bonds, private energy and emerging markets. This follows a trend that we see in all asset classes, which is that long term returns tend to match the commensurate risk being taken. In the case of reinsurance, as stated by Axis Capital Holdings CEO Albert Benchimol in this week’s recommended reading, “The halcyon days of easy underwriting profits and steady investment returns are in the rearview mirror.” While bad news for those that made easy profits in the 90’s and 2000’s, this is great trend for those that are looking to reduce risk in their investment portfolios and now have yet another tool with which to do so. This is also proving to be a great trend for consumers, as reinsurance is allowing premiums to fall and make insurance more affordable for everyone.