Alternative capacity can drive industry innovation


The influx of alternative capital will encourage creativity and innovation, however, the industry must remain disciplined says Kathleen Faries from Tokio Solution Management (TSM).

“There is a general understanding that the alternative capital is here to stay, and people are starting to accept that,” she said. “The influx has encouraged people to think innovatively and find new solutions.

“The recent press around flood coverage could result in some very interesting outcomes. Companies that can innovate – and are good at it – will be very successful.”

Following the prediction of an active cat season, there are some who believe that convergence capacity may exit should these events occur. But as Faries explains, the market is now wildly accepted.

“The wider market will have an impact on the sustainability of alternative capital,” she says. “Some may leave, however, in general, people are starting to accept that this capital will always be here.”

But she also points out that it must also remain profitable. “No market, not even the pension funds, will question the return – it needs to remain profitable. The effect of capital on rates could affect the stickiness of the pension funds, so there needs to be discipline. The premium to cover the risk must be adequate and the underwriting must be disciplined, regardless of who you are.”

Bermuda is swiftly becoming a dominant region in terms of a domicile for this alternative capital and this is something that will continue, believes Faries.

“Bermuda really is the centre of convergence,” she said. “It has a significant reinsurance presence, ILS dedicated funds and cat bonds are growing all the time.

“The ILS Convergence Bermuda event is also a big deal; there is a huge commitment from the government and the industry.”

Following the formation of Shima Re, the company’s Class 3 segregated accounts company, TSM is now also able to participate in this market.

“We can now provide the leverage and remove some of the risks,” she said. “We used Shima Re to create the Tokio Tensai platform with GC Securities, which enabled us to provide private cat bonds.”

Nearing its one-year mark, TSM’s goals for the coming months involve strengthening relationships and providing a bespoke service to its clients.

Tokio Solution Management, ILS, alternative capital, Bermuda, reinsurance

Bermuda Re