Alternative reinsurance capital continues to innovate and is an important part of matching capital with risk, and its drive to get closer to the original source of risk is expected to continue, according to executives at insurance and reinsurance broker, Aon.
Alternative, third-party reinsurance or insurance-linked securities (ILS) capital has significantly increased its share of the overall reinsurance market pie in recent times, cementing itself as a viable, diversified, willing and sophisticated pool of capital that is now leveraged in some form by the majority of global reinsurers.
In more recent times, and perhaps most notable during the prolonged soft reinsurance market cycle, third-party capital has looked to get closer to the original source of risk, essentially jumping the value chain in search of greater profits. This trend was highlighted by executives at Aon recently, speaking during the broker’s fourth-quarter 2018 earnings call.
“It (alternative capital) is here to stay and is an important part of matching capital with risk. So we see applicability on the reinsurance side continuing to evolve and grow, and also on the primary side,” said Gregory Case, Aon’s Chief Executive Officer (CEO).
Eric Andersen, Aon Co-President, explained that ultimately alternative capital is just a different pool of capital, one that is “continuing to drive closer and closer to the original risk client as opposed to where it had started, which is in the retrocessional market.”
“It continues to be innovative,” he added. “It continues to be creative to try and drive new solutions in areas where we have historically not been able to create client solutions, whether it’s in pandemics areas or other large exposures. So, they’ve proven to be very good partners and thought partners on how to innovate.”
Andersen went on to explain that alternative capital is trying to drive solutions in the commercial risk market, as it continues to push to get closer to the front-end clients, adding that this is a trend Aon expects to continue in the future.
Aon Co-President Michael O’Connor, echoed this point, saying that capital trying to get closer to the risk is happening all over the world, with capacity starting to look at emerging risks and exposures like cyber and IT and others, as well as more traditional risks.
“We think about matching client needs with capital, and that’s across insurance and reinsurance. You will see us continue to try to find ways to innovate and find the right capital to meet our clients’ needs, and alternative capital will be part of that solution,” said O’Connor.