Dislocation drives creative reinsurance capital beyond cat

As global capital reaches record levels, reinsurance buyers are not only finding more favourable deals, but also more creative offerings in risk transfer.  

KEY POINTS:
Dislocation creates capital opportunity
Structured solutions back in focus
Sidecars and re-shares gaining traction

Kelly Superczynski, head of capital advisory at Aon’s Reinsurance Solutions, told APCIA Today that clients were no longer considering capacity shortfalls, but were engaging experts to help them optimise their programmes given the range of options available in the marketplace.

“Capital is creative, and it’s chasing opportunity where dislocation is greatest,” Superczynski explained. “Where there’s dislocation, there is opportunity for capital to solve bespoke challenges, and we don’t see signs of this abating any time in the near future.”

New investors are entering the property and casualty re/insurance space, while existing players are looking to grow materially. Most notably, Superczynski said there had been an expanded presence from existing reinsurers and new markets dedicated to structured reinsurance.

“In recent years, a common structured reinsurance cover has been net quota share solutions used to manage leverage, while companies were absorbing significant premium growth from rate increases,” she noted.

“Our focus is on bespoke solutions, and that’s where reinsurers are pivoting as well. They want to work with clients to solve their challenges.”

“Today, there is renewed interest from insurers and markets alike for structured reinsurance that focuses on managing earnings volatility – example products include aggregate stop-loss and multi-year spread-loss covers to mitigate against the impact from catastrophe retentions being pushed up in recent years.”

Superczynski said that structured reinsurance remains available to develop bespoke client solutions, and she wants cedants to keep an open mind.

“Our focus is on bespoke solutions, and that’s where reinsurers are pivoting as well. They want to work with clients to solve their challenges. Just because a market doesn’t always want to write a specific deal at an exact price doesn’t mean there isn’t a deal to be had. It just takes some creative thinking, and that’s what I think Aon does really well.”

Another fast-developing area is the use of re-shares: transactions that move a slice of a cedent’s outward reinsurance placement into the hands of large asset managers. “We completed two re-shares last year, one of which received a lot of attention, and led a large number of clients and investors to be interested in the solution as a way to source third-party capital at scale,” Superczynski said.

Sidecars, too, remain a “hot topic” as both traditional and specialist alternative managers search for diversification. Aon has already closed several this year, with more in the pipeline.

While innovation is grabbing headlines, traditional tools still matter. “We also closed a couple of key legacy deals in the past year, which are of ongoing interest to our clients as adverse loss development remains prevalent, and social inflation isn’t going anywhere any time soon.”

Superczynski’s wider role within Aon is to help clients think holistically about their capital strategy. “Within capital advisory, our primary goals are to help our clients understand how to leverage all forms of available capital and best match risk and capital, which helps to drive better business decisions,” she explained. 

Technology makes that task faster and provides more insight. “AI enabled us to conduct this research more efficiently and on a more global scale. We’re also using AI to generate analysis and different quantitative insights for our clients, again, much more efficiently and at a broader scale.”

For reinsurers, the big question remains: where is capital focused now? Superczynski pointed to several themes.

“Alternative capital remains interested in property cat – just look at the record number of cat bonds closed over the past 12 to 18 months. We don’t think this will abate as inflation persists and companies need to find much more limit.”

Casualty lines are also attracting strong interest while rates remain elevated. “In recent times, those investors have been able to pretty easily invest well above the risk-free rate and earn their desired returns on casualty deals,” she noted.

Kelly Superczynski is the head of capital advisory at Aon’s Reinsurance Solutions. She can be contacted at kelly.superczynski@aon.com

For more news from the American Property Casualty Insurance Association (APCIA) click here.

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