Alternative capital keeps growing
Alternative capital keeps growing, and this has many implications for the re/insurance industry, write Graham Coutts, director, insurance and Eduardo Recinos senior director, insurance (LatAm) at Fitch Ratings.
Record cat bond issuance
Catastrophe bond issuance increased to record levels in the first half of 2017 and strong investor appetite means that market conditions are favourable for further issuance into 2018 as maturing issues are replaced with larger deals and new sponsors enter the market as part of their risk management strategy.
Despite the increased issuance of catastrophe bonds, Fitch expects the main driver of alternative capital growth to be the collateralized reinsurance segment. Fitch expects insurance-linked securities (ILS) funds to compete strongly into 2018 and to offer expanded capacity at decreasing pricing margins. Fitch expects this to continue to intensify competition, particularly in well-modelled markets such as US windstorm risks.
Life and health less exposed to alternative capital
Fitch believes that the life and health market will remain less exposed to the influx of alternative capital seen in the property and casualty market, although there are examples of independent funds being set up to take long-term life risks. The long-term nature of the risks and the high barriers to entry for the sector mean that although Fitch expects to see development in this area, it will not be as transformational as in the non-life reinsurance sector.
Traditional reinsurance capital remains abundant
Despite Fitch’s expectation of lower profitability, we expect capitalization to remain strong across the traditional reinsurance sector.
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