International ratings agency A.M. Best has highlighted the continued growth of the convergence space, stating that of the estimated $420 billion of dedicated reinsurance capacity at the end of 2016, $75 billion is from the convergence space.
The alternative reinsurance capital, insurance-linked securities (ILS), or convergence space continues to expand its presence and influence within the global reinsurance landscape.
A.M. Best states that at the end of 2016 it’s estimated to make up as much as 18% of global, dedicated reinsurance capital, which the ratings agency, along with reinsurance broker Guy Carpenter, estimates to have reached $420 billion by the end of 2016.
“Third-party capital continues to seek a larger piece of the pie, but the speed of capital market capacity entering the market seems to have slowed compared to prior years and some collateralized markets have held capacity flat, unable to find suitable opportunities. In A.M. Best’s opinion, this is a healthy response to the current market environment,” said A.M. Best, in a recent A.M. Best briefing.
The continued, but slowed growth of convergence capital was also highlighted by reinsurance broker Aon Benfield, although their numbers do differ to A.M. Best’s latest estimates. Aon Benfield estimates that dedicated reinsurance capital as at September 30th 2016 amounted to $595 billion, with alternative capital making up an estimated $78 billion, or 13% of the total.
Highlighting the disparity in estimates in the volume of alternative reinsurance capital Artemis, in response to the outstanding catastrophe bond market ending 2016 at its largest ever size, estimates that the convergence space likely makes up some $80 billion of overall reinsurance capacity.
But while the numbers may differ it’s clear that the broader insurance and reinsurance industry is aware of the continued growth of the convergence space, with A.M. Best estimating that at the end of 2016 it could make up as much as 18% of global reinsurance capacity, which represents some impressive growth.
Times remain challenging for reinsurers, there’s no doubt about it, but the presence and growing influence of alternative reinsurance capital should, and largely is regarded as an opportunity and positive supplement to the traditional space, despite it clearly adding to pricing pressures and competition.
“Companies that have created expertise in managing third-party capital to their own advantage and are capable of participating in the new era of consolidation without being left out of the game,” says A.M. Best, stand a better chance of navigating the testing times.
So the message so far in 2017 seems to be that ILS has continued to grow but at a slower pace than in previous years, which is a disciplined and healthy response to the difficult reinsurance market landscape. And while growth has slowed, the alternative space continues to claim a larger share of overall reinsurance capacity, broadening its remit and position in the global risk transfer world.