The entry of alternative capital and its focus on non-life reinsurance opportunities has ‘created stress’ within the traditional market, according to Evan Greenberg, Chairman and CEO of global multiline property casualty insurer and reinsurer ACE.
Greenberg, speaking on a panel at the International Insurance Society’s London seminar this week, said that the entry of capital from outside the market, from institutional and alternative sources, is likely part of a much broader and more sustained trend which will see the capital structure of the reinsurance market change.
The non-life reinsurance market has received the most attention from alternative sources of reinsurance capital largely because of the favourable pricing and the shorter-tailed nature of the risks involved, Greenberg said.
However, the flow of capital into reinsurance has squeezed much of the profit out of reinsurance and wholesale business, leaving incumbents who were once reliant on this profit margin in a position where they might struggle. This has ‘created stress’ in the market, Greenberg said.
Now that pricing has declined in property catastrophe and non-life risks the focus of this capital has moved on. Greenberg said that alternative capital has started to look to other areas of the traditional reinsurance market, where the risks are more medium-tailed.
Greenberg said that this does not worry him, or his firm, given its position as one of the largest originators of risk. The risk originator role in the market has not changed, Greenberg explained, but the ability to package risks and apply capital to them from different sources has resulted in changes in the reinsurance market.