Alternative influx opportunity for smart retro buys

While many in the reinsurance industry are concerned about the potential implications of the influx of alternative capital, it also offers an opportunity to leverage increasingly diverse sources of retrocessionalcapacity.

That is the view of Tatsuhiko Hoshina, chief executive of Tokio Millennium Re. He believes the market needs to consider alternative capital in a new way, rather than panic. Whereas reinsurers previously could only buy retro indemnity covers and ILWs, they can now enjoy a much more diverse range of ILS and collateralised products.This is thanks to a burgeoning interest by the capital markets in the reinsurance space. Hoshina believes this can allow reinsurers to develop more innovative solutions around their retro programmes – something that would not be possible without this capacity.
Not that it is all good news. Hoshina agrees that convergence capital is placing pressure on rates and Tokio Millennium Re does not always get the market shares it would like. But he is also reflective. He believes alternative capital is here to stay and that, as such, it is necessary to respond and adapt to the new dynamic.
He also likens this dynamic of third party capital providers bringing money into the market to what the Lloyd’s market has done for years. The Lloyd’s market has always ceded a portion of its risk and this approach is now being copied by the company markets, said Hoshina. The history and success of Lloyd’s suggests that there is little to fear from the changing dynamics, he notes.
Hoshina added that Tokio Millennium Re is considering raising funds of its own in the convergence space to minimise volatility in the reinsurer’s catastrophe portfolio, moving from risk taking to fee income in the process. He added that the company was considering such options closely. It is also preparing fora re-domestication to Switzerland and opening an US office in the first quarter of 2014.