Dislocation drives creative reinsurance capital beyond cat

The reinsurance capital market has entered a new phase, with alternative investors branching out from property cat and diversifying into casualty, structured deals and bespoke reinsurance solutions. 

Key points:
Re-shares’ and sidecars gain fresh momentum
Lloyd’s a hotspot for new capital
Legacy deals remain vital amid inflation

That shift is reshaping how reinsurers think about capital, according to Kelly Superczynski, head of Capital Advisory at Aon’s Reinsurance Solutions, who told Monte Carlo Today that the conversation had shifted. 

Capital is creative, and it’s chasing opportunity where dislocation is greatest. “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,” Superczynski explained. 

New investors are entering the property and casualty re/insurance space, while existing players are looking to grow materially. One clear hotspot is Lloyd’s. “Lloyd’s continues to produce market-leading combined ratios, which is due to the niche nature of those lines that flow through, as well as the underwriting expertise needed to write those lines,” she noted.

Just as importantly, Lloyd’s itself has been working to make access easier. “Lloyd’s has made enormous changes in how it operates to be much more attuned to innovation. For example, London Bridge 2 is being utilised to bring new and predominantly institutional capital into the market much more efficiently than was possible in the past.”

Aon has responded by expanding its team to support the surge of interest in new syndicate launches and capital raises. The focus is not just on traditional risks but also on bringing “new innovative types of risks into the market”, Superczynski added.

Another fast-developing area is the use of re-shares: transactions that move a slice of a cedant’s outward reinsurance placement into the hands of large asset managers. “We did two re-shares last year, one of which got a lot of attention, and it led to a large number of clients and investors 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.”

“We’re using AI to generate analysis and different quantitative insights for our clients.”

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

Technology is making that task faster and more insightful. “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 gathering in Monte Carlo, 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. “Those investors can pretty easily invest well above the risk-free rate and earn their desired returns on casualty deals,” she noted.

Structured reinsurance is another growth area. Over the past five years, 15 to 20 new markets have entered the space, “offering net quota share-style solutions” that reinsurers increasingly view as a tool for portfolio balance. 

“Structured reinsurance remains available to solve bespoke client solutions. As I mentioned before, 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.”

Superczynski wants cedents to keep an open mind. “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.”

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

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