16% will use alternative reinsurance capital sources says Guy Carpenter survey

by Artemis on November 15, 2012

Reinsurance broker Guy Carpenter has released some results from a survey which saw them poll insurance and reinsurance executives who attended the 2012 Property Casualty Insurers Association of America (PCI) Annual Meeting recently. The survey looked to identify the key drivers and threats to profitable growth in the industry and asked participants a number of questions regarding what they felt could make the difference to their business in 2013.

With the January reinsurance renewals fast approaching the results make interesting reading. It’s pleasing to see that more than one-third of those surveyed said that their biggest opportunity to grow their business in 2013 will be through new products. The second most popular answer there was to expand into new geographic markets while the third was to pursue new distribution channels. These answers are pleasing as they point to a desire within the re/insurance sector to innovate and leverage the expanding developing economies to grow the sector while also focusing on routes to market, all key areas that the markets we cover can support and assist with.

Threats remain in the global economy though and Guy Carpenter asked what respondents saw as the biggest threat to their plans to grow their businesses in the year ahead. 36% cited undisciplined or unprofitable underwriting as their primary concern. This was followed by catastrophe and non-catastrophe losses at 22% and global economic uncertainty 19%.

Guy Carpenter asked those surveyed what sources of reinsurance capital they intended to use in the coming year. 78% responded that traditional reinsurance vehicles were the way they would go next year but 16% said that alternative sources of reinsurance capital such as insurance-linked securities, catastrophe bonds and collateralized reinsurance vehicles would be their choice for the year ahead. That’s encouraging and is inline with the numbers that have been discussed regarding the size of the convergence market when compared to the overall reinsurance sector before.

“Global reinsurance capital is at an all-time record high. Although we will continue to see the convergence of traditional and non-traditional sources of capital, it is clear that traditional vehicles will continue to be an engine for growth and play a significant role in companies’ strategy for 2013,” commented Andrew Marcell, CEO of U.S. Operations for Guy Carpenter. “With continued economic stagnation and global market uncertainly poised for the year ahead, insurers and reinsurers will need diligent risk evaluation and prudent portfolio planning in order to identify new opportunities, use their capital effectively and grow profitably.”

There is clearly an opportunity here for the alternative reinsurance and convergence markets to step up with innovative products and an appetite to underwrite risks on a global basis and in developing nations and seize a good portion of the new business from re/insurers looking to grow in 2013. Collateralized reinsurers and instruments such as cat bonds and ILS can offer products which fit very well into the aspirations of these survey respondents, innovative, global in coverage and with the ability to support the establishment of new distribution channels and be channel agnostic. The alternative sources of reinsurance capital also have the ability to be flexible, agile and adapt to changing insurer needs. If insurers want to innovate and tap into emerging economies, the alternative reinsurance capital space needs to go on this journey with them and be prepared to offer innovative protections that will support insurers growing needs.

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