Alternative capital hits $81bn, sustains growth rate: Aon

Alternative capital in the insurance and reinsurance market and across the range of insurance-linked securities (ILS) and collateralised products reached a new high at $81 billion and encouragingly sustained its recent pace of growth, according to broker Aon Benfield.

It had been thought that alternative reinsurance and ILS capital growth had been slowing in 2016, but the full-year figures from Aon Benfield actually show that it sustained the rate of growth from 2015 and in the last quarter of the year the rate of growth actually picked up a little again.

$81 billion is a new high for the insurance-linked securities (ILS) and collateralised reinsurance market, with another key milestone passed. But we believe the fact that growth was sustained through one of the most competitive years on record may prove to be more important.

2016 was a hugely competitive year for the ILS market, with the traditional reinsurance sector fighting hard on price and terms, but by the end of it alternative capital continued to exert its efficiency on the market and achieved another impressive full-year of growth.

Perhaps most impressively, despite the reports that growth has been slowing, on Aon Benfield’s numbers alternative capital grew by almost 13% over the full-year 2015 and matched that growth rate in 2016 as well, showing that despite the competition and market-forces, ILS and collateralized reinsurance products continue to increase their appeal.

Also impressive is the fact that alternative capital has increased its share of global reinsurance capital as well. In 2015 the $72 billion of alternative capital made up almost 12.5% of the $565 billion of total global reinsurance capital.

But at the end of 2016, the percentage had increased with the $81 billion of ILS and alternative capital making up nearly 14% of total reinsurer capital, showing that not only has the rate of growth been sustained, but that rate has been sufficient to eat away another chunk of traditional reinsurer market share.

The continued growth of alternative capital and ILS fund capacity even at a time when reinsurers have been under the most pressure, and so at their most competitive, bodes well for ongoing growth.

As too does the recent pricing seen in the catastrophe bond market and the way that has encouraged repeat sponsors to return and deals to upsize, all of which suggests that further opportunities to increase market share have been witnessed so far in 2017.

It’s going to be interesting to see whether this growth rate can be just sustained further into 2017, or whether it could actually accelerate further as the efficiency of the capital markets becomes increasingly influential in reinsurance markets worldwide.

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