Convergence market is a win-win for buyers

The convergence between reinsurance and the alternative capital markets is creating a buyers’ market as innovation flourishes and prices continue to decline, believes David Croom-Johnson, active underwriter at Lloyd's syndicate AEGIS.

“The market is awash with capital and all of these collateralised deals are really starting to have an effect on the way that I, as a purchaser, buy reinsurance,” he said. “I have more choice than I've ever had. From my perspective, we're seeing an ability to combine our catastrophe reinsurance purchasing with our risk reinsurance purchasing. We're looking at multiclass aggregate deals that haven't been around for 10 to 15 years.”

He rejects the view that convergence capital is less committed to the space than traditional reinsurers arguing that reinsurance presents tempting opportunities for investors that are unlikely to be abandoned. But he added: “But capital is as fickle as anything. All you need is three big hurricanes and these guys may run for the hills. You never know.”

Croom-Johnson also reinforced the importance of reinsurance providers and the relationships they have established and maintained with primary insurance players over many years. He said that cedants with no reason to rush into the capital markets shouldn't do so if their needs are being well provided for by the traditional reinsurance marketplace.

“We've had relationships with some of these collateralised markets over the last two to three years and we're buying some of it. To us, they seem to be more innovative because they need to utilise their funds and that puts pressure on some of the more traditional markets to come up with more innovative products. They have to follow the market and deliver the choice or they'll lose business. But the traditional markets remain very important to us. A lot of time and effort has been put into those relationships. You don't want to rush into the capital markets for the sake of it.”