It’s neither helpful nor sustainable if the only effect of alternative reinsurance capital is to push down rates. Instead, as an industry we should leverage capital markets-backed capacity to grow the pool of insured risks, hence expanding the protection we can offer, says the Chief Executive Officer (CEO) of Allianz Re, Amer Ahmed.
Artemis spoke with Ahmed of Allianz Re, the reinsurance arm of global insurer Allianz, around the annual meeting of the reinsurance industry held recently in Monte Carlo.
The rise and permanence of alternative, or third-party reinsurance capital was discussed, as was the reinsurer’s relationship with asset manager PIMCO, and also the potential for insurance-linked securities (ILS) to expand its reach and remit.
To start, Ahmed explained that it’s Allianz Re’s expectation that alternative reinsurance capital is here to stay, and, what’s more, will continue to grow.
“Driven by the current reality of investment options that are available, it seems that this is not going to change in the near term. There is this growing pool of investors that have invested in understanding insurance risk, got comfortable with it and many of them have got a good grip on cat risk. So I would expect that they are here for the longer term.
“This is something which we as an industry need to harness. It is not good if this abundance of capital only pushes prices further down. The reality is that there is a lot of risk which is not protected today, which we as insurers, with all the tools and capabilities that we have, can bring into play and make available to this additional capital,” said Ahmed.
Currently, he continued, the focus has to be around the cat space, with much of what is coming into the ILS market being the well modelled, well understood risk.
“It’s an industry opportunity to expand ILS to more cat perils across the globe. This means we need to improve data and models, as well as our understanding of that risk to make investors comfortable with it. Then we need to get more of that risk insured,” said Ahmed.
Adding, “That may be through primary distribution, but also by taking this to the macro level, interacting with government or quasi government bodies. Some of the development agencies are working on this and we as an industry need to work more with them.
“It’s an opportunity if we, together with our peers and partners, manage to integrate this approach into the insurance mechanism. This will ultimately reduce the cost of risk for society, increase the resilience of economies and societies and bring risk to investors who are eager to take it on.
“I think it is a pretty appealing story, if we as an industry figure out how we can make that happen.”
Allianz ART is a prominent market participant in the alternative capital space, and in 2018, restructured its alternative risk transfer business line, which includes its specialist ILS team, into a standalone business line, called Capital Solutions.
The rest of the Allianz ART business offers corporate solutions, reinsurance, and climate solutions, including weather risk transfer, parametric insurance, and other services.
PIMCO, the $1.76 trillion asset management arm of re/insurance giant Allianz S.E., launched its PIMCO ILS business in January 2019, later stating that it sees its relationship with its parent as key to its ILS potential.
Artemis was eager to hear whether Allianz Re was engaging with PIMCO and their ILS strategy.
“Yes, in this collaboration we can use the Allianz access to risk – that is risk we already have and additional risk we can acquire, to match it with PIMCO’s access to the investor base,” explained Ahmed.
For Allianz, alternative reinsurance capital is an important part of its business model and one that adds value as the insurer and reinsurer continues to harness the willingness, sophistication, and efficiency of the growing ILS investor base.