Kramer: Seeing an “explosion” in the insurance-linked securities business

We love a bullish quote here on Artemis and veteran reinsurance industry exec Don Kramer has provided one at the Bermuda Captive Conference which has been held over the last few days on the island. The CEO of ILS Capital Management, Kramer is quoted in this Royal Gazette article as saying that he is ‘seeing an “explosion” in the insurance-linked securities (ILS) business’ adding that investors are opting to deploy capital into alternative instruments and capital providing sources such as catastrophe bonds rather than set up new reinsurers.

Kramer highlighted a convergence of factors which are helping to push capital into alternative risk capital solutions such as insurance-linked securities and cat bonds, low interest rates, volatile financial markets and low stock valuations of reinsurers are all helping the flow of money. We would also add that the high coupons paid on a number of cat bonds are also helping to attract new money right now along with the sometimes less exciting, but equally valuable, diversification that they offer to investors.

Kramer says that reinsurance company values are down, particularly when compared to years such as the early 90’s when new reinsurers were formed after hurricane Andrew. He believes that stock market valuations of reinsurers are at 70% to 80% of book value. This isn’t translating into the rate hikes some would have predicted. Kramer said; “It should bring about a rise in prices, but instead it’s created a new industry — insurance-linked securities.”