Alternative reinsurance capital

Tullow Oil, the operator of the striken Kwame Nkrumah FPSO (floating production storage and offloading) on the Jubilee oil field, Ghana, has said that its insurers have confirmed that the firm has a recoverable claim to make under its business interruption policy.

The gap between the supply and demand of reinsurance protection has narrowed in recent times and, at the same time, global reinsurance capital has increased to a record-breaking $585 billion, according to Aon Benfield.

Following meetings with re/insurance industry observers and experts in Monte Carlo recently, analysts at J.P. Morgan have warned that any hike in risk free rates, while unlikely, could lead to further deterioration of reinsurers’ RoEs.

In order for the insurance-linked securities (ILS) market to continue to grow at the pace it’s been accustomed to, it will need to expand and diversify into new peril regions via innovation, according to industry leaders.

While alternative capital has tested the marketplace, fundamentally changing the risk transfer business and been said to have disrupted the risk-to-capital value-chain in recent times, Aon says it’s important to remember that it’s provided an innovative force within insurance.

Despite a slowdown in the growth of alternative reinsurance capital in more recent times there’s no sign of the pool shrinking, and with a wealth of capacity waiting to enter post-event it’s unlikely a large event will turn the market, according to a recent note from Peel Hunt.

The U.S. excess and surplus (E&S) lines insurance market may come under increasing pressure as reinsurance firms and others with the ability to underwrite E&S risks target the sector to offset lower pricing in other areas of reinsurance, according to Fitch Ratings.

Japanese and global property & casualty insurance group Sompo Japan Nipponkoa Holdings Inc., is the latest to embrace use of blockchain technology for risk transfer as it trials the technology for catastrophe and weather linked derivative transactions.

Michael Stahel, Partner and Portfolio Manager at LGT ILS Partners describes how tearing down the wall between the reinsurance and capital markets has fundamentally altered the reinsurance cycle.

It’s likely that the insurance and reinsurance industry will find itself in “danger of releasing reserves” despite the suggestion that accident year redundancies are running low, suggesting the cycle has reached an inflection point, according to reinsurance broker JLT Re.