For French reinsurance company SCOR the development of the alternative reinsurance capital sector is to the advantage of its shareholders, while the direct competition for premium income posed by alternative capital is limited, the reinsurer believes.
SCOR says that first tier, diversified global reinsurance companies such as itself are playing an entirely different game to alternative reinsurance capital. SCOR says that diversified reinsurers are differentiated by providing value added services to clients, making efficient use of capital and by underwriting across all geographies, perils and lines of business.
SCOR does not feel threatened by alternative capital, instead feeling that the development of the ILS and alternatives space provides value to its shareholders as the reinsurer leverages capital from third-parties in a number of ways as well as offering services to the ILS industry.
At the same time as recouping value by working with and for alternative reinsurance capital, SCOR also says that the portion of its premiums written which are in direct competition with alternative capital are limited, one of the benefits of being large and globally diverse as a reinsurer, over being narrowly focused.
SCOR is one of the reinsurers that analysts are most positive about at the moment and the reinsurer clearly feels this differentiated approach of not being in direct competition with alternative capital is playing out to its advantage. In fact SCOR feels that alternative capital is complementary to its first-tier traditional reinsurance offering, enabling it to take advantage of the capital markets appetite for insurance linked investments.
SCOR says that the alternative capital that has entered the reinsurance market has clearly defined characteristics. ILS and alternative capital is a low-cost business model, says SCOR, offering collateralized capacity across a narrow set of regions and perils. By comparison SCOR offers the full spectrum of reinsurance perils and geographies as well as features like reinstatements which it believes help it to maintain market share.
SCOR says that it uses alternative capital to the advantage of its shareholders in terms of retrocessional reinsurance capacity purchased, services offered to the ILS and alternative capital space as well as through its asset management division.
SCOR has expanded its retrocession program at the recent January reinsurance renewal season and the reinsurer said that it expects to benefit from a 0.6% positive impact to its combined ratio due to improved buying conditions and less expensive retro coverage.
SCOR broadened its access to the capital markets at 1/1 through its retrocession program, with particular examples being its recent mortality cat bond transaction through Atlas IX as well as its first sidecar under the Atlas branding, Atlas Reinsurance X.
In terms of services to the ILS and alternative reinsurance capital market SCOR offers its services as a transformer facility, enabling its clients to access collateralized capacity from the capital markets while still taking a fee for transforming the risk. SCOR says that it also offers its expertise to clients that want to access the capital markets and can also provide mechanisms for covering basis risk.
SCOR sees participating in ILS and alternative capital deals as a service provider as a key way to enhance its existing relationships, serve clients even when they are looking for non-traditional solutions and to generate fee income which benefits its shareholders.
On the asset management side, SCOR’s Global Investments unit is also involved in the insurance-linked securities and reinsurance convergence space as a manager of third-party capital and a number of insurance linked investment funds. SCOR Global Investments operates three ILS fund strategies under the Atropos brand, helping to deliver fee income for managing third-party capital as well as managing seed funding provided by SCOR itself which generates more revenue for the reinsurer.
SCOR’s strategic plan has so far seen it benefit from the continued convergence of reinsurance and capital markets under the banner of ILS. The firms globally diverse traditional reinsurance business allows it to avoid too much direct competition with alternative capital while allowing it to benefit from third-party capital in its own retrocession program and to profit from providing services to the ILS space.
As the alternative reinsurance capital sector grows and the influence of ILS and new capital expands in reinsurance it will be interesting to watch reinsurers like SCOR to see if the competition builds. SCOR is currently able to offset any negative impact from the competition posed by ILS and alternative capital through its savings on retrocession and its fees and income from services and asset management provided.
At the moment SCOR seems quite happy with the status quo, between its traditional capital and the alternative capital which is growing in reinsurance. Time will tell whether it too begins to feel more pressure from the capital markets in years to come.