Third-party reinsurance capital news

The use of alternative capital and insurance-linked securities (ILS) in the reinsurance market has had its “proof of concept” moment, as following the losses the market continues to function as intended, investors seem comfortable with their exposure and many are planning to reload or upsize allocations to the space.

Reinsurance broker JLT Re reports that “selective firming” was seen in global property catastrophe reinsurance rates at the January 1st 2018 renewals, helping the firms Risk-Adjusted Global Property-Catastrophe Reinsurance Rate-On-Line Index to a 4.8% rise, the first increase since 2011/12.

Dutch pension fund manager PGGM has secured a second issuance from its collateralised reinsurance sidecar, as the Leo Re Ltd. vehicle issued a $140 million Series 2018-1 Class B tranche of notes, shortly after issuing a $260 million Class A tranche earlier in December.

The availability of risk capital has curtailed reinsurance renewal rate rises at the key January 1st 2018 contract signings, with global property catastrophe and risk programs only seeing average risk adjusted price rises of 0% to 7.5%, according to broker Willis Re.

The decoupling of reinsurance pricing and expected reinsurance losses is “a less-than-ideal business model” according to analysts at Keefe, Bruyette & Woods, who feel that price hikes tend to be a reaction to losses, rather than being commensurate with a changing view of risk.

While the record levels of third-quarter catastrophe losses are expected to “crystalize a turning point” by the equity analysts at Morgan Stanley, the team believe that this any post-loss turn in rates will be more durable in primary insurance lines than in reinsurance or retrocession.

A new $260 million Leo Re Ltd. collateralised reinsurance sidecar transaction has been issued on behalf of Dutch pension fund manager PGGM, as the organisation returns for its second issuance under the Leo Re vehicle, following its $200 million 2017 sidecar arrangement.

ILS fund manager Nephila Capital has made an equity investment in newly launched multi-class and multi-territory managing general agent platform Volante Global Limited (Volante), a firm that has ambitions to help alternative capital investors broaden their reach.

Property catastrophe pricing is no longer as heavily influenced by the traditional reinsurance market as it was historically and is now “at the mercy of the alternative capital market” according to A.M. Best, who holds its 2018 outlook for the global reinsurance sector at negative.

In the wake of recent catastrophe loss events, many major players in the global reinsurance market are pushing for rate increases at the renewals, seeking either to be paid back after bearing losses for their clients, or seeking pricing that they feel is more commensurate with the risks they underwrite.