All capital will blend in the end: Andersen

Alternative capital is now entering the market at many more points in an attempt to get closer to the risk and the logical conclusion is that some insurance-linked securities (ILS) funds will look to launch rated carriers, Eric Andersen, co-president of Aon, told Monte Carlo Today.

“They are increasingly moving down the chain; all the different forms of capital will increasingly blend,” Andersen said.

“It is just different buckets of capital, but the system is built around the rated carrier and that might be the competitive advantage some seek.”

He agreed that some of the recent losses will put pressure on rates, especially on the retro side, but added that the conversation around rates was far from a straightforward one about their increasing.

He said most cedants wanted to be treated on their own merits, while rate hikes on the primary side would benefit many reinsurers working via quota share deals anyway.

“All buyers want to be treated on their merits, based on their individual performance and that of their portfolio. Meanwhile, I am not seeing reinsurers jumping up and down for increases.

“I would call it a healthy tension in the market: buyers in Europe or Japan do not want to be paying for losses in Florida, and vice versa,” he said.

He agreed that price negotiations had become more regional in recent years as opposed to the global cycle the market has seen in the past. He said this was partly a function of the better data and analytics available now.

“Companies have to compete in their own market. They do not want to be paying for someone else’s loss,” he added.

Asked about the changes in the Lloyd’s market, he said he felt its senior management were doing “all the right things” but added that the market needs to establish what sets it apart on the global stage.

“Value comes from doing something distinct, rather than just providing capital,” he concluded.