Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Alternative capital & ILS has “uberized” insurance & reinsurance


The innovatively generated, and expanding source of alternative reinsurance capital is a game changer that has uberized the insurance and reinsurance industry, according to industry leaders speaking at the 2016 Monte Carlo Reinsurance Rendezvous.

While the numbers from different sources may vary, one estimate puts the wealth of alternative reinsurance capital at roughly $75 billion of the estimated $400 billion of global reinsurance capacity.

Described by Dominic Christian, the Chief Executive Officer (CEO) of reinsurance broker Aon Benfield at the ongoing meeting of the reinsurance industry in Monte Carlo, as an “innovatively generated” source of capital, it continues to deepen its relationship with the marketplace.

“To some extent alternative sources of capital are already, and have already uberized insurance and reinsurance, by bringing increased sources of supply,” said Christian.

The industry is more than aware of the excess capital that’s in the global reinsurance market, sourced from both traditional and alternative sources. While its presence has challenged the sector in some sense, it’s also provided ample opportunity for various entities within the risk value chain to utilise its benefits. Christian highlighted this point, explaining that much of the $75 billion is “transacted by securities teams within large reinsurance brokers.”

Throughout the meeting of the reinsurance industry in Monte Carlo alternative capital has been discussed as a trend that is likely to continue to expand, suggesting increased importance and influence of structures such as catastrophe bonds, collateralised reinsurance placements, and other forms of insurance-linked securities (ILS).

Michael McGavick, the CEO of XL Group and who sat on the same panel as Christian that sought to discuss insurance, reinsurance, technology and digital disruption, also noted the influence of alternative capital.

“Alternative capital, the realisation that you don’t have to have money in an insurance company to be a participant in risk solutions,” is a secular trend, explained McGavick.

“Alternative capital is a game changer for the reinsurance industry, we all know that,” said McGavick.

McGavick told the audience of two major trends and five secular trends that are impacting the industry. With the two big trends being the scarcity of talent and the fact that “technology changes everything.”

Beyond alternative capital, McGavick told the audience that analytics, globalisation, broker consolidation, and regulation are also important secular trends that are taking place in the re/insurance industry.

Also on the panel was the CEO of reinsurance giant Swiss Re, Christian Mumenthaler, who, also noted the inflow of alternative reinsurance capital when questioned about the ease at which capital can enter the space compared to exiting.

Capital “is extremely easy to come in, I think it’s getting a little bit more difficult with regulation, globalisation and all of that, but it’s still very easy to get in, and very hard to get out.”

“I’m a little bit more optimistic with the newest form of alternative capital, which just goes in and out but that’s not attached to a lot of people, and I think you see that some of that money is not coming back, it’s not hanging around. So I think the issue for the industry is not so much the alternative capacity, because that has been very rational,” said Mumenthaler.

As we’ve discussed previously during the 60th meeting of the reinsurance industry in Monte Carlo, it’s promising to hear such prominent figures and leaders from the industry discuss alternative capital and ILS in a positive manner.

As the Artemis Deal Directory shows, both Swiss Re and XL Group have participated in the catastrophe bond market, and Aon Benfield Securities has participated in a large number of cat bond transactions over the years.

It appears that the industry has become far more accepting of the presence of ILS and the rise of alternative reinsurance capital in the global re/insurance industry, a trend that leaders and executives of global firms expect to continue.

And of course, we believe that this uberization of re/insurance will only accelerate with the advent of Insurtech.

Read all of Artemis’ Monte Carlo Rendez-vous coverage here.

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