Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Broker-dealer affiliates issue 90% of ILS risk capital in 2010


Guy Carpenter highlight an interesting point in the second part of their World Catastrophe Reinsurance Market report regarding the types of companies involved as arrangers, structurers and placement agents in catastrophe bond insurance-linked security deals this year.

In previous years investment banks have been the dominant force in cat bond placement. Prior to 2007 70% of cat bonds were placed by investment banks. Since 2007 that percentage has been dropping. In the first half of 2010 90% of the risk capital in catastrophe bonds issued were placed by broker-dealer affiliates of reinsurance brokers (ie. Aon Benfield Securities, GC Securities). The only deals issued without the use of a broker-dealer affiliate have been Swiss Re’s Successor X and their recent Green Valley Ltd., in both of these transactions Swiss Re Capital Markets plays that role.

These broker-dealer hybrids are now positioning themselves as providing investment banking services but with reinsurance market and risk transfer knowledge which makes them perfectly suited to the insurance-linked securities market.

We wonder whether these companies could structure and issue cat bonds on behalf of a bucket of their reinsurance broking clients? That could allow smaller insurers and reinsurers to access the capital markets more easily.

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