Response of ILS capital one of the big surprises: Denis Kessler, SCOR

One of the big surprises in the reinsurance sector following the level of catastrophe losses in 2017 was the reloading and expansion of alternative, or third-party reinsurance capital, according to the Chairman and Chief Executive Officer (CEO) of SCOR, Denis Kessler.

The annual meeting of the reinsurance industry in Monte-Carlo featured a CEO panel today, and unsurprisingly, part of the debate focused on the limited rate improvements following 2017 catastrophe events, which is in part a result of the influence of alternative capital.

Addressing the audience, SCOR’s Kessler explained that in the aftermath of three hurricanes, two powerful Mexico earthquakes and wildfires in California, the industry was expecting two things – sharp rate increases and a lack of willingness from capital markets investors to reload.

“On the contrary,” said Kessler, “there is more ILS today than there was one year ago, and they did reinvest massively in those ILS funds.

“So, two big surprises – extremely limited rate increases, and again an influx of third-party capital in this industry, and really we don’t understand that.”

The growing presence of ILS, which is now believed to total almost $100 billion of dedicated reinsurance capital, clearly had an impact on rates at the January renewals and beyond, with positive momentum limited and mostly seen in loss-impacted lines.

This has led to debates around the reinsurance cycle, and whether or not the traditional reinsurance cycle has now flattened for good, or disappeared entirely.

Kessler said that the “cycle has disappeared, that’s my strong conviction,” explaining that the marketplace is different today than it was in the past.

“Today, you can raise capital easily. You can create an ILS fund in one hour, you can issue a cat bond in maybe two, three weeks,” said Kessler.

The CEO of reinsurance giant Swiss Re, Christian Mumenthaler, also discussed the influence of alternative capital and how over time, it found new ways into the re/insurance industry, via collateralised reinsurance and other forms that he said are actually more classical reinsurance.

“So, capital markets have actually moved towards us, and not vice versa,” said Mumenthaler.

Adding: “This pool of capital is huge. I think it’s probably here to stay, I think we have to assume that this is a very efficient way of hedging cat risks.”