20 November 2013 News

$100bn more alternative capital to come

As much as another $100 billion in alternative capital could enter the reinsurance markets in the next five years with the affect this will have on the market being a question of how it is managed.

That was the view of Bryon Ehrhart, CEO of Aon Benfield Americas, speaking at Standard & Poor's Ratings Services' 2013 Bermuda (Re)insurance conference last week.

He said that overall the entry of alternative capital “has had a positive impact” in that it's given his company the opportunity to present its clients with additional risk-transfer options –a situation, he noted, that has “improved greatly in the past 18 months”. But in terms of its level “it's nowhere near a plateau,” he said.

Kean Driscoll, CEO of Validus Reinsurance, agreed that third-party capital has become an "important component" in his company's overall strategy, allowing Validus to provide "diversity of capital". Nevertheless, he said that the "traditional reinsurance product is ultimately more compelling to the vast majority of our client base".

Another perspective came from Kevin Kelley, CEO of Ironshore, who explained that it's not surprising alternative capital came into the market through reinsurance because the barriers to entry are lower than for primary insurance markets.

Panel moderator Taoufik Gharib, a director at Standard & Poor's, asked the industry executives what effect the influx of capital has had on property catastrophe reinsurance pricing.

Driscoll explained that there's "clearly a supply-demand imbalance, manifested in pricing here [in Bermuda] and the US". He noted, though, that even with prices eroding, the margins remain attractive. The real challenge, he said, is with size, scale, and distribution. "Price will be price; it's simple supply and demand."

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