Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

New capital inflows expected when earnings delivery confirmed: Aon’s Van Slooten


With an improved reinsurance market outlook, new capital is now expected to flow in once earnings delivery has been confirmed in reported results, Aon’s Mike Van Slooten has said.

mike-van-slooten-aonVan Slooten, Head of Business Intelligence at Aon’s Reinsurance Solutions, is referring to traditional reinsurance capital, it seems, but there is a positive read-across for the insurance-linked securities (ILS) market and flows of third-party capital into reinsurance as well.

As we’ve written a number of times, in order for meaningful capital to flow into the reinsurance and retrocession space, to relieve some of the capacity constraints that have been seen, certain issues must be addressed.

These range from the need to prove out how the adjustments in terms and higher pricing will affect reinsurance profitability and outcomes.

To the need to demonstrate that issues like climate change are being robustly considered in modelling.

KBW’s analyst team led by Meyer Shields said it well, that despite rates being so much higher in reinsurance, it is going to be the delivery of actual strong results that encourages more capital into the space, not forecasts of expected returns.

While John Dacey, the CFO of global reinsurance firm Swiss Re, said that the industry needs to better address investor concerns over climate change impacts to nat cat risk, in order to encourage more capital into the ILS space.

Van Slooten of Aon said that, “Looking ahead, renewal outcomes in 2023 and the tailwind of higher interest rates have improved the outlook for reinsurers.”

As a result of which, he forecast that, “We expect new capital inflows to begin relieving current capacity constraints when earnings delivery is confirmed in reported results.”

That’s a very positive signal from the senior Aon reinsurance executive, as with results coming over the next few weeks, it suggests that if these look especially positive for the industry, reflecting the improved underwriting conditions and pricing, that could stimulate the flow of new capital to begin again.

Sources on the private equity side of the investment community confirm that there is capital ready to support new ventures, or growing the capital pool for existing players in the market.

While on the insurance-linked securities (ILS) side, new capital is already flowing to the catastrophe bond market and we are hearing of pockets of fund-raising success on the collateralized reinsurance side as well.

Another demonstration of how the return-potential of reinsurance underwriting has improved can only help to provide more confidence to investors, in both the traditional and alternative sides of the market.

If the earnings demonstration proves positive, it could be a precursor to more significant capital flows, it seems Van Slooten is suggesting.

While that may be too late for the mid-year renewals, in many cases, it ties in with the more widely held expectation that the January 2024 renewals may see capacity much less of an issue.

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

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