No longer alternative, how capital sources can work together is the strategic decision: Gallagher Re

During reinsurance broker Gallagher Re’s Pre-Monte Carlo Media Briefing, Will Thompson, Head of Global Clients, said alternative capital is no longer a separate conversation from traditional reinsurance and is now an integral part of the capital stack.

Ahead of the annual Monte Carlo Rendez-Vous de Septembre (RVS), Thompson highlighted that clients now have access to a broader capital toolkit than at any point in the industry’s history.

“Traditional reinsurance remains and will remain critically important, but today it sits alongside cat bonds, sidecars, collateralised reinsurance vehicles, and a growing range of bespoke capital arrangements. Increasingly, clients are evaluating these solutions together, rather than viewing them as distinct markets, and that’s a significant shift from even five years ago,” said Thompson.

He continued, “Historically, alternative capital was often viewed as exactly what the name suggests-an alternative, something clients might consider when traditional capacity became constrained or particularly expensive. That simply isn’t how the market operates today. Alternative capital is no longer a separate conversation. It’s an integral part of the capital stack.

“For many of our largest clients, deciding how much risk sits with traditional markets, how much sits with capital markets, and how those different sources of capacity work together has become a core strategic decision.”

Thompson said that, in addition to asking what the most efficient structure for the renewal is, clients are increasingly asking what the most efficient way to finance that risk over the next three to five years is.

He added, “As interest and demand from clients is increasing, investors continue to demonstrate a growing appetite for insurance risk and a desire to deploy their capital across a wide spectrum of classes and products with long-term commitments.

“We’ve seen capital flow into our industry to underpin the record issuance of cat bonds, both cat and non-cat cat bonds, as well as the growth in sidecars, particularly whole accounts and casualty sidecars via the well-publicised Lloyd’s external reinsurance vehicles, as well as other platforms in jurisdictions.”

Andrew Newman, President at Gallagher Re, also noted that clients are increasingly less concerned with where capital originates and more concerned with what that capital can do.

“The distinction between traditional and alternative is becoming progressively less important than the ways in which different forms of capital can be combined. Capital combines not only on price but on flexibility, structure, duration, and strategic value.

“The market conversation has moved from access to capital to optimisation of capital, with the defining conversation in today’s market not being whether capital is available; it’s how to deploy that capital most effectively,” explained Newman.