Flood Re open to alternative (capital) market retrocession solutions

by Artemis on October 10, 2014

The UK government’s planned state-backed flood reinsurance pool, Flood Re, has published a tender for retrocessional reinsurance broker services, detailing that it is open to alternative risk transfer or alternative (capital) market solutions.

The tender documentation explains that Flood Re expects that responding retrocessional reinsurance broker will be able to demonstrate:

“How to approach the reinsurance and alternative markets on behalf of the Authority.”

The procurement process is agnostic as to source, form or structure of retrocessional reinsurance solutions proposed by responding brokers. It is also agnostic as to the location or type of reinsurance market the protection is provided by and that includes the alternative markets, by which it is assumed the insurance-linked securities (ILS) or capital markets is included.

Flood Re is open to provision of reinsurance by:

“Various markets (reinsurance, insurance and financial markets) including London market, Lloyd’s syndicates, US and Bermuda reinsurers, Continental Europe reinsurers, reinsurance markets outside Europe and Americas, financial markets, new and alternative markets.”

The successful reinsurance broker will be responsible for assisting Flood Re with selection, negotiation, agreement, administration and appointment of retrocession or ART (Alternative Risk Transfer).

It’s encouraging to see the tender process being very open in terms of the structure that will reinsure Flood Re as well as the markets or form of capital solution that could participate in the retrocession programme.

Whether ILS structures could be used, such as catastrophe bonds, or other alternative solutions using indices or parametrics, is uncertain. Given the property catastrophe reinsurance and retro market’s appetite for new risk opportunities the pricing is bound to be keen on traditional solutions, as well as on alternative ones.

It will be interesting to see whether alternative, capital market backed, providers of retrocession capacity will take a share of the Flood Re programme once it is placed. Given the appetite for catastrophe risk right now, competition between the alternative, or ILS / capital market capacity, and the traditional reinsurer capacity could be quite fierce when the Flood Re retro programme comes to market.

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