HYPOTHETICAL BACKTESTED PERFORMANCE DISCLOSURES
The hypothetical performance results included in this material are for backtested model portfolios and are shown for illustrative purposes only. Neuberger Berman calculated the hypothetical results by running a model portfolio on a backtested basis using the methodology described herein. The results do not represent the performance of any Neuberger Berman managed account or product and do not reflect the fees and expenses associated with managing a portfolio. If such fees and expense were reflected, returns referenced would be lower. The model portfolio may not be appropriate for any investor. The model may change in the future due to market events and risks in the insurance industry.
There may be material differences between the hypothetical backtested performance results and actual results achieved by actual accounts. Backtested model performance is hypothetical and does not represent the performance of actual accounts. Hypothetical performance has certain inherent limitations. Unlike actual investment performance, hypothetical results do not represent actual trading and accordingly the performance results may have under- or over-compensated for the impact, if any, that certain economic or other market factors, such as lack of liquidity or price fluctuations, might have had on the investment decision-making process or results if assets were actually being managed. Hypothetical performance may also not accurately reflect the impact, if any, of other material economic and market factors, or the impact of financial risk and the ability to withstand losses. Hypothetical performance results are also subject to the fact that they are generally designed with the benefit of hindsight. As a result, the backtested models theoretically may be changed from time to time to obtain more favorable performance results. In addition, the results are based, in part, on hypothetical assumptions. Certain of the assumptions have been made for modeling purposes and may not have been realized in the actual management of accounts. No representation or warranty is made as to the reasonableness of the assumptions made or that all assumptions used in achieving the hypothetical results have been stated or fully considered. Changes in the model assumptions may have a material impact on the hypothetical returns presented. There are frequently material differences between hypothetical performance results and actual results achieved by any investment strategy. Neuberger Berman did not manage any accounts in this manner reflected in the models during the backtested time periods shown.
DEFINITIONS
Industry Loss Warranties (“ILWs”) are private investment contracts enabling the transfer of catastrophe risk from the protection buyer to the protection seller. The term “industry loss” refers to the fact that the triggers for the contracts are typically based not on the losses of a specific insurance company but rather on insured losses across the insurance industry as reported by a third-party, independent reporting agent. ILWs are typically fully cash-collateralized by both parties, reducing credit risk. ILWs are short-term instruments, typically 180 days to 365 days in duration, and are self-liquidating. In addition, as they are privately negotiated instruments, ILWs allow for greater customization of risk and return profiles.
Catastrophe bonds are typically 144A securities structured as floating-rate principal-at-risk notes of 3- to 5-year maturity, and designed to transfer reinsurance risk to the capital markets. A central feature of a catastrophe bond is its trigger mechanism, which defines the type of event that would cause a principal reduction to the notes. The trigger mechanism could be based on actual insured losses of the issuer (known as indemnity cover), industry-index losses (aggregating all insured losses in the covered area) or even parametric data (e.g. wind speed measurements). Today, most catastrophe bonds are indemnity-based, approximately a quarter index-based and the rest in parametric form.
Reinsurance Quota Shares are financial arrangements (typically called “sidecars” when utilizing special purpose vehicles) established to allow third-party investors to take on a pro-rata exposure to the risk and returns of a reinsurer’s portfolio or a specialized portfolio with risks selected by the reinsurer. Unlike traditional reinsurance, reinsurance quota shares are usually fully collateralized and of limited duration, typically from one to three years. The terms and risk-return profiles of sidecars vary widely.
Sharpe Ratio is the ratio of excess return (over the risk free rate of rate, i.e., cash or Treasury bills) to risk (measured by volatility). A higher Sharpe ratio means a better risk/return trade-off.
INDEX DEFINITIONS
The Swiss Re Cat Bond Total Return Index tracks the total return of a representative basket of the global catastrophe bond market, excluding life and health catastrophe bonds.
The Bloomberg Barclays US Corporate High Yield Total Return Index Value Unhedged USD measures the total return of a more liquid component of the USD-denominated high-yield fixed-rate bond market.
The Guy Carpenter Global Property Rate on Line Index is an index of global property catastrophe reinsurance Rate-on-Line movements, on brokered excess of loss placements, covering all major global catastrophe reinsurance markets. It has been maintained by Guy Carpenter since 1990 and is updated following renewals on January 1 each year by calculating the year-on-year change in rate-on-line across the same renewal base.
The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of all eligible hedge fund strategies, including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset-weighted based on the distribution of assets in the hedge fund industry.
The Markit iBoxx USD Liquid Leveraged Loans Total Return Index measures the total return of the approximately 100 of the most liquid, tradable USD-denominated leveraged loans.
The Bloomberg Barclays U.S. Treasury Total Return Unhedged USD measures the total return of USD-denominated, fixed-rate U.S. Treasury bonds with a maturity longer than one year.
Correlation with Other Asset Classes. Catastrophic events are unpredictable and it is entirely possible that major losses will occur at or about the same time as other components of an investor’s portfolio are also declining in value. In addition, the amount of global capital investing in insurance-related risks may be impacted to some extent by interest rates and other events affected traditional asset classes within the broader capital markets.
Reliability of Valuations. Investments that are illiquid (including ILWs), not traded or for which no value can be readily determined, generally will be assigned value based on pricing models, dealer quotes or independent appraisals, or such other factors, as applicable. Such valuations may not be indicative of what actual fair market value would be in an active, liquid or established market.
ADDITIONAL DISCLOSURES
This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Investment decisions and the appropriateness of this material should be made based on an investor’s individual objectives and circumstances and in consultation with his or her advisors. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. The use of tools cannot guarantee performance. Diversification does not guarantee profit or protect against loss in declining markets. Indices are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.
This document is addressed to professional clients only.
This document is presented solely for information purposes and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security.
We do not represent that this information, including any third-party information, is complete and it should not be relied upon as such.
No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of any investment, and should consult its own legal counsel and financial, actuarial, accounting, regulatory and tax advisers to evaluate any such investment.
It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable.
Any views or opinions expressed may not reflect those of the firm as a whole.
All information is current as of the date of this material and is subject to change without notice.
The product described in this document may only be offered for sale or sold in jurisdictions in which or to persons to which such an offer or sale is permitted. The product can only be promoted if such promotion is made in compliance with the applicable jurisdictional rules and regulations.
Indices are unmanaged and not available for direct investment.
An investment in this product involves risks, with the potential for above-average risk, and is only suitable for people who are in a position to take such risks.
Past performance is not a reliable indicator of current or future results. The value of investments may go down as well as up and investors may not get back any of the amount invested. The performance data does not take account of the commissions and costs incurred on the issue and redemption of units.
The value of investments designated in another currency may rise and fall due to exchange rate fluctuations in respect of the relevant currencies. Adverse movements in currency exchange rates can result in a decrease in return and a loss of capital.
Tax treatment depends on the individual circumstances of each investor and may be subject to change, investors are therefore recommended to seek independent tax advice.
Investment in this strategy should not constitute a substantial proportion of an investor’s portfolio and may not be appropriate for all investors. Diversification and asset class allocation do not guarantee profit or protect against loss.
No part of this document may be reproduced in any manner without prior written permission of Neuberger Berman Europe Limited.
The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.
