The Macro Insurance Income Strategy
A Disciplined Approach to Selling Market Insurance
My Philosophy: Running an Insurance Business
This strategy should be thought of as operating a specialty insurance business, not as a standalone investment portfolio. My business is to sell insurance policies (options) that protect against drops in various markets. In exchange for selling this protection, I collect a payment, or "premium." My primary goal is to consistently collect these premiums while minimizing the chances of having to pay out a major claim.
I use my "Macro Weather Framework" as my underwriting process, allowing me to select asset classes (lines of insurance) that are least likely to suffer a loss. However, like any insurance company, I do not have enough capital to pay out every claim at once in a catastrophic event. This strategy involves risk, and its success is measured by the steady growth of my premium reserves over time.
The Underwriting Process: My Macro Weather Framework
The Quantitative Foundation
I begin with a proprietary quantitative model that analyzes trend and momentum across 40+ global markets. This provides an objective, data-driven reading of market health, telling me what is happening, free from narrative or bias.
The Macroeconomic Overlay
Next, I integrate a wide range of fundamental economic data, including inflation reports, employment figures, manufacturing indices, credit growth, consumer spending, etc., to understand why the markets are behaving as they are.
The Qualitative & Thematic Insights
Finally, I layer on forward-looking analysis of long-term structural trends, policy shifts, and market sentiment. This allows me to position for opportunities that may not yet be fully reflected in the current data.
A Unified Underwriting Outlook
The synthesis of these three pillars results in a single, coherent view that determines which insurance policies I am willing to write.
My Lines of Business & Current Underwriting View
Updated Monthly
Underwriting View: Favorable Conditions
My analysis indicates the current "Macro Weather" is favorable for my insurance business. I am in a "Risk-On" environment of Stable Growth & Disinflation, which reduces the broad risk of claims across my policy book.
My Two Lines of Insurance
My business is divided into two distinct "insurance engines" that are positioned based on my underwriting view.
Line 1: General Market Insurance
This is my primary line of business, where I sell broad insurance policies on the S&P 500. I use my underwriting view to set a target for how much total market risk I want to have on my books.
Line 2: Specialty Insurance
This is my specialty business, where I underwrite policies on other types of assets to diversify my risk. I filter for assets that are uncorrelated to the general market and align with my macro themes.
Performance Summary
The performance is taken from a $1 million portfolio trading a 50/50 split of these two strategies.
Net Return
+$56,866
(+6.26% of NAV)
Benchmark (AOR)
+4.54%
Sharpe Ratio
9.01
Max Drawdown
-0.50%
AOR Max Drawdown
-1.07%
Value at Risk (99.5%)
-$37,168
(-3.85% of NAV)
Risk Management: My Guardrails
Understanding Value at Risk (VaR)
My Value at Risk (VaR) is an estimate of my "worst-case, one-day loss scenario" with 99.5% confidence. This figure may seem high relative to a standard index fund, but it reflects the nature of my business. As an insurer, my largest losses occur during rare, cataclysmic market events.
My Claims Management Process
Managing a Claim (The Roll)
My primary defense is a hard risk limit for every policy. If a market move causes the risk on a policy to exceed my predefined cap, I will "roll" the policy—adjusting its terms by moving it further into the future—to reduce the immediate risk.
Discontinuing a Line of Business
I will stop writing policies for a specific asset if my underwriting view changes. This happens if the Macro Weather becomes unfavorable for that asset class, or if my quantitative model signals a "break down" in the trend.
The Ultimate Backstop: My Capital Strategy
The foundation that allows my entire claims process to function is my conservative capital management:
- Low Margin Utilization: I typically only use about one-fourth to one-half of the margin available to me.
- Broad Diversification: My policies are written across numerous, uncorrelated asset classes including equities, fixed income, commodities, and digital assets.
Please note that this is an active trading strategy that uses options to replicate the risk and reward profile of an insurance business; it is not a literal insurance company. For transparency and security, all client accounts for this strategy are custodied at Interactive Brokers.
This strategy is currently open only to friends and family. To learn more, please reach out directly.
This material is for informational purposes only and does not constitute an offer or a solicitation to buy or sell any security. Past performance is not indicative of future results.