Swiss Re Insurance-Linked Fund Management

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Diversification of how capital accesses re/insurance risk notable in 2014


While the growth of collateralized and capital markets sourced insurance and reinsurance capacity has been particularly impressive in 2014, it is the expansion and diversification of the ways capital can source and access re/insurance risk that is most notable.

So says reinsurance broker Guy Carpenter in a recent update. The broker reiterated a figure it provided earlier this year, saying that capital markets sourced re/insurance capacity grew by approximately $20 billion over the last two years.

$20 billion of growth in assets under management at ILS fund managers, collateralized reinsurance funds, sidecars, operators of other capital market vehicles and hedge fund reinsurers is an impressive enough number, but it is how investor access to the risk is evolving that has been most notable according to Guy Carpenter.

As the amount of limit placed using ILS or collateralized reinsurance products grows, some of these markets are broadening their line of business and product focus, according to Guy Carpenter. The growth trend that started in 2013 has continued as a result and there has been a widening of application as well, helping investors to access more risks.

Guy Carpenter said; “As capital continues to inflow from an ever broadening investor base, including pension funds, endowments, sovereign wealth funds and asset managers, the most notable development in 2014 is the expansion and diversification of how this capital is sourcing the (re)insurance risk.”

The comments from the reinsurance broker reflect the increasing maturation of the ILS and catastrophe bond market, creating new opportunities for investors to access risk more broadly across insurance and reinsurance, as well as maturity among investors who themselves are building relationships to enhance risk sourcing.

As the catastrophe bond market reached new records in terms of issuance and the outstanding market by the end of 2014, and with further growth expected in 2015, we can expect investors capital deployment opportunities to continue to grow.

An increase in the use of collateralized reinsurance sidecar vehicles and special purpose reinsurers has also been notable in the run up and at the January renewals, with a number of new vehicles added to our listing of reinsurance sidecars here. This provides additional choice to investors and helps re/insurers to benefit from lower-cost third-party capital.

As the ILS, insurance-linked investing, catastrophe bond and collateralized reinsurance market continues to mature investors are becoming increasingly capable of sourcing a diverse set of risks through a broad range of vehicles and instruments. That provides diversity, choice and means that more types of investors are likely to be attracted to the market in future as well.

Also read:

Reinsurance rates decline at Jan 1, change the only sustainable course.

Q4 2014 Cat Bond & ILS Market Report – A busy finish to a record year for ILS.

Collateralized ILS capacity gains share at 1/1 reinsurance renewals.

At $62B alternative capital now 40%-50% of catastrophe reinsurance.

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