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Investors focus on purest forms of reinsurance risk through funds: Willis Re


Reinsurance broker Willis Re have noticed a change in the way new capital has been entering the reinsurance sector. Capital continues to be drawn into global reinsurance they say in their Willis Re 1st View April Renewals Report, but on a different basis to previous years when startup reinsurers would have been the dominant vehicle for new investor capital entering the space. Now investors are concentrating on accessing the purest forms of reinsurance risk through specialist funds and other structures.

The improving rate environment is one of the factors helping to attract new capital to the reinsurance sector, however rate rises are gradual they say but are beginning to receive wider market support. The report goes into some detail on rate increases across different regions and lines of business.

As usual we’re most interested in the comments on the capital markets in Willis Re’s report. Here we replicate their points with our comments added:

  • They say that net investor cash inflows to the sector remain strong. This has certainly been evident in the last quarter from our discussions with investors and fund managers.
  • They highlight the continued focus of the catastrophe bond markets on U.S. hurricane risks, something clearly evident from the dominance of that peril in cat bond deals completed over the last quarter.
  • Investors are demanding increased transparency in cat bond structures, this is a trend that has received more focus since the Mariah Re cat bonds were hit by the tornado season last year. We’re not sure how much this has to do with transparency and how much it has to do with education. Investors are becoming more savvy and therefore demanding more detail on transactions. At the same time sponsors are becoming more comfortable with disclosure levels. Transparency is a good thing though and if the cat bond market is to grow significantly the trend towards more transparent structures is likely to continue.
  • They say that relative pricing for cat bonds is becoming more favorable for sponsors. This is again a trend which has been happening for a while, helped in this quarter by renewal rate rises making cat bonds more affordable when compared to traditional reinsurance and retrocession.
  • This is an interesting one; Willis Re say that there is increasing interest in cat bonds and catastrophe derivatives from retrocession buyers. If retrocession buyers were to move more of their cover to the structured products and securitization areas of the convergence market this could result in quite significant growth for the sector. We’ve yet to see real evidence of this in the form of transactions (in the cat bond space anyway) but if this is a growing topic in renewal discussions then that can only be positive.
  • On industry loss warranties (ILWs), Willis Re say that there has been significant activity with Japan quake in the 1st April renewal season. They are also seeing an increasing flow of deals prior to the U.S. hurricane season and interest in other perils such as terrorism, pandemics and life.

You can access the full report from Willis Re here.

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