9 April 2014 News

Reinsurance capital hits record levels

The levels of both traditional and alternative reinsurance capital increased in 2013, creating a level of competition of business that is beneficial to reinsurance buyers.

The total level of reinsurance capital available to insurers increased by 7 percent overall, hitting $540 billion in total, but this was largely driven by a 28 percent growth in alternative capital, which stood at a record $50 billion at year end, according to a report by broker Aon Benfield.

The “transformative impact” of alternative capital flows into the reinsurance industry continues to benefit reinsurance buyers, said the report. Traditional reinsurers are also moving into the space to enhance their value propositions and match the price points available directly from funds that have not developed relationships with cedents.

“While the traditional reinsurance market has only begun its transformation, it is clear that it will match the new lower disaggregated (diversifying) price-points of alternative investors,” said the report.

For reinsurance buyers, the impact is positive, as they “are now able to imagine a future where very heavy margin loadings for peak zones may not be part of the long-term future”.

Japanese renewals, which make up a lot of the activity in April, saw improved pricing and alternative capital maintaining a presence in Japan earthquake risk.

US renewals also saw abundant capacity with a continued improvement on contractual terms from traditional reinsurers, said the report. Relaxed hours clauses, more favourable reinstatement terms were seen in the US with renewals in the UK and India similarly focused.

Minimum spreads in the catastrophe bond market continue to decline. Overall, Q1 2014 saw $1.4 billion of ILS issuance, continuing the building momentum from $7.5 billion total 2013 issuance.

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