Third party capital will seek primary risks, says Aon Benfield boss
Innovative structures to facilitate third party capital seeking risk-linked investments will continue to emerge in 2015, before then also expanding into the primary market, Paul Schultz, CEO of Aon Benfield Securities, told Intelligent Insurer.
Speaking of the rumoured deal between ACE and Blackrock that could see the insurer form an internal reinsurance vehicle capitalised by alternative capital to manage a portion of its ceded premium, Schultz said that these types of deals will become more popular.
“Clients aren’t transferring risk for the sake of it, but they might change the form in which they transfer that risk,” he said. “So, we’re going to see more bespoke transactions and open market deals."
Schultz added that the execution risk around the bespoke deals is lower because it is evident where the premium will be sourced, which is attractive to cedants.
“The issuers then just need to identify which underwriters have already taken transactions like this, and which ones are still available. Right now, a lot of these transactions are focused around reinsurance, but at some point this market will move to insurance as well, creating more of these types of deals in the future,” he said.
While these internal vehicles could bring less need for brokers, Schultz explained that as long as all parts of the distribution chain are adding value, there’s always going to be a role for these products.
“When there’s no value or perceived value, that’s when there’s going to be some disintermediation of that distribution channel,” he said.
“Currently there’s still value for all of these roles within the traditional chain. The whole market is changing, and those that change with it are the ones that have a sustainable business model.”
To read the whole feature on the Intelligent Insurer website, click here.