Alternative capacity is now anunhealthy distraction for some

For all the talk about the influence of alternative capital on the market, many executives – on both sides of the fence – believe it is not relevant or appropriate to many parts of their operations and feel the market has become increasingly distracted by its influx at the expense of focusing on the core needs of the industry.

Alex Teterukovsky, reinsurance manager for If…, one of the leading property/casualty insurers in the Nordic region, told Intelligent Insurer that he has little interest in using alternative capacity and feels such options are being unnecessarily imposed onto buyers – mainly by brokers – even though they have little to gain by changing their reinsurance programme.

“It has been proposed to us but we have some concerns about it,” Teterukovsky said. “We are not sure it will react to big losses in the market. We would prefer to maintain strong relationships with our long-term reinsurance partners. This is also partly because we like to exhibit the same type of behaviour and commitment to long-term relationships that we like to expect from our own clients.”

This idea that some elements of the market have become unnecessarily focused on the influence of alternative capital is backed up by Stephan Knipper, chief executive of AXIS Re Europe. Knipper believes the influence of alternative capital on the market is now much greater than its actual size.

“We are sometimes seeing it used as an argument in negotiations – with both brokers and clients – to improve terms and conditions despite it being irrelevant to the specific lines we are discussing,” he said. “It only has a real influence on a small and very specific proportion of the market yet its influence seems to be reaching way beyond that. I feel the argument should only be made where it makes sense.”

Knipper says that it only represents competition on property-catastrophe business, something that represents just 10 percent of AXIS Re Europe’s portfolio in continental Europe. He does not believe this form of capital will diversify beyond this niche believing it will remain limited to highly modelled perils where higher rates are also possible.

He admits that working with clients on their property-catastrophe exposures often represents an important driver on relationships. But it is important to keep its influence in perspective.