Exchange-traded risk: never say never


This month, Tom Johansmeyer, AVP – reinsurance services, marketing at ISO/Verisk Insurance Solutions, talks about the increasing range of risk-transfer options for cedants.

johansmeyer-thomas-portrait.jpgThe range of risk-transfer alternatives available to cedents is staggering — but is it enough? From traditional reinsurance to a variety of capital markets solutions, cedents benefit from more options than they’ve ever had. And changes in the mix of capital markets risk-transfer solutions show that insurers and reinsurers are becoming increasingly savvy with regard to capital management. However, the opportunity for greater progress toward market efficiency remains.

The rapid rise of collateralised reinsurance over the past few years and the outbreak of cat bond lite activity demonstrate that insurers and reinsurers are seeking new ways to transfer risk efficiently and with minimal frictional cost. At the other end of the spectrum, catastrophe bond issuance remains high, with $4.1 billion in the first half of 2015 alone (property only). While fewer transactions are coming to market, they’re getting bigger. The number of catastrophe bonds completed in the first half of the year (net of cat bond lite) fell 11 percent year over year.

Experienced sponsors and publicly managed entities (all of which are experienced sponsors) have dominated the market this year. In the second quarter, usually the busiest of the year, more than half of capital raised came from publicly managed entities. It’s easy to see the trend forming.

ILS, Cat bonds, ISO, Blog, Tom Johansmeyer

Intelligent Insurer