Bermuda (re)insurance market welcomed alternative capital in 2013

The Bermuda (re)insurance market welcomed the interest of alternative capital providers in 2013, according to Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR)

Bermuda’s reinsurance market has been central to the growth of the alternative capital trend in reinsurance. Some of the very first initiatives in alternative risk transfer, catastrophe bonds, insurance-linked securities and more recently collateralized reinsurance were developed on the island and Bermuda continues to play a leading role in the convergence of the capital markets with reinsurance today.

So it’s no surprise that Bermuda’s insurer and reinsurer members of the ABIR have embraced alternative capital and continue to do so, developing vehicles to take in and manage third-party investor money such as sidecars and funds, as well as leveraging the capital markets to augment their own risk transfer programs.

Bermuda’s insurers and reinsurers are also using alternative capital as a way to lower the cost of their underwriting capital, enabling them to become more expansive and look to take advantage of new market opportunities.

Kading commented; “ABIR members have welcomed the interest of alternative capital providers including pension funds into the risk taking business and have focused in 2013 on expanding markets given the availability of new capital in taking on insurance and reinsurance risk.”

The ABIR’s member (re)insurers wrote $70.1 billion in global gross written premiums in 2013 (up from $66.4 billion in 2012) on a capital and surplus base of $95.4 billion (up from $95.2 billion in 2012). The ABIR’s member (re)insurers reported net income of nearly $11.7 billion was up from $9.4 billion in 2012.

Of course the ABIR member reinsurers have benefited from low catastrophe losses in the last year or two and are facing the reinsurance softening threat head on, given many of them have a strong focus on catastrophe lines of business. The future may prove more testing for the islands reinsurers, but with a leading role in ILS and third-party capital they are at least making the right moves to try to combat the current market environment.

Given the pressure applied by lower-cost capital on some core underwriting lines and regions, it is encouraging that the ABIR members are responding to the changing capitalisation of the reinsurance business by welcoming alternative capital into their market. In the current environment welcoming new capital is without a doubt the best step to take while these market trends continue to evolve, third-party capital’s influence on reinsurance rates is not over yet.