Capital influx could hit reinsurers’ growth

The acceleration of new money from the capital markets flowing into the reinsurance industry is starting to concern some players worried it could hamper their own growth aspirations.

That is the view of Willis Re’s most senior executives in a renewals report that also details the scale of capital markets cash flowing into the industry. It estimates that more than $35 billion is now being put to use in the global reinsurance market through a variety of sources.

But it also states there is a clear acceleration in the volume of fresh capital seeking opportunities. And this total also does not include some private deals never disclosed.

“Traditional reinsurers have begun to voice concern about access to risk to feed their own growth aspirations,” the report said. It went onto state that the overall volume of reinsurance premium coming into the global market is being squeezed by a number of other factors including M&A activity and higher retentions by larger insurers, based on revised capital management strategies.

Additionally, the global economic downturn has meant growth in mature markets remains sluggish and this is not being offset by growth in developing economies. Meanwhile, changes in the some primary market distribution models have acted to concentrate premium into fewer larger players’ hands.

It said reinsurers are responding to this pressure in different ways. “Faced with this wave of new capital, traditional reinsurers have begun to recognise the scale of the challenge to their current portfolios that the new capital represents. While some reinsurers are considering how to respond, others are developing third party capital management propositions to offer their own skills and platforms as fund managers,” the report said.

The report also highlighted the fundamental change this means to the industry’s traditionally cyclical nature.

“The advent of new capital is likely to have a significant impact on any post-event response, which may occur after a major loss. To date, the traditional model of fresh capital coming into the market has been through the formation of new companies but it is being overtaken by a new model of fast capital flowing in through less permanent structures. For an industry where primary insurance companies value sustainability, this emerging model brings many challenges.”