Collateralized reinsurance news

While the insurance and reinsurance market find’s itself increasingly awash with capacity from all sources, the disruptive effect of the growing insurance-linked securities (ILS) and third-party reinsurance capital is seen as a key risk to re/insurers that should not be ignored.

The use of third-party, or alternative, capital and the expansion of insurance-linked securities (ILS), such as catastrophe bonds and collateralized reinsurance into Latin American markets is currently constrained, meaning its participation remains low in the region.

The growing pool of alternative reinsurance capacity continues to enter the global reinsurance market, becoming an increasingly integral part of the sector’s landscape, but will third-party investors and their capital remain after the next large loss event?

Alongside the growth of ILS, alternative capital, the catastrophe bond and other capital market backed reinsurance capacity, the other main threat to the traditional reinsurance business model in recent years has been the steady decline in investment returns.

The global reinsurance market shows signs that the pressure on pricing due to soft market conditions is slowing, as rate declines decelerated at the mid-year renewals, but reinsurers, despite remaining profitable, are still under pressure, according to Fitch.

The influence of alternative reinsurance capital and growing insurance-linked securities (ILS) capacity in the global re/insurance market, is now so widely felt that even the ASEAN insurance community is feeling increased competitive pressures as a result of it.

Typhoon Goni is now heading towards what is forecast to be a Category 2 or 3 hit on Kyushu, Japan, putting insurance exposures in cities such as Nagasaki at risk and potentially exposing reinsurance contracts, as well as two catastrophe bonds, Akibare II and Aozora Re.

Federated National Holding Company (FNHC) has increased its use of collateralized reinsurance and insurance-linked securities (ILS) fund capacity at its 2015 reinsurance renewal, in another example of the continued penetration of ILS capital.

As insurance and reinsurance companies in the Asia Pacific region look to strengthen resilience to disasters, there is an expectation that the catastrophe bond will increasingly feature as regional re/insurers leverage alternative sources of risk capital.

First-half 2015 insurance and reinsurance company registrations in Guernsey show that the domicile continues to have success in attracting collateralised reinsurance, ILS and longevity risk transfer related protected and incorporated cell business.