Insurance and specialty may be next target for third party capital

19-09-2013

Insurance rates, which have been decidedly more buoyant than those in the reinsurance sector, and rates on specialty business could come under attack if convergence capital pushes more players out of property-catastrophe.

That is the view of Patrick Hartigan, head of treaty at re/insurer Beazley, who said that the current influx of convergence capital could yet have a profound effect on both specialty lines reinsurance business and insurers.

As a leading specialty player in the London market, with around half of the Beazley’s underwriting income coming from specialty line business, Hartigan said that Beazley was concerned about the prospect of specialty classes being considered more closely—both by alternative capital or by traditional players squeezed out of the property-catastrophe space by burgeoning capacity. Specialty players will need to burnish their credentials in the face of increased competition.

He said that similar concerns around the insurance industry were not unfounded. Hartigan explained that while the insurance sector had enjoyed a good few years, the potential for reinsurers to increase their involvement in the space in response to troubled rates and rising levels of capital, could yet lead to rates coming under pressure in the insurance market.

Hartigan was circumspect, however, particularly as Beazley has a split book of business that comprises 75 percent insurance and 25 percent reinsurance. He said that the ebb and flow of capital and interest between the two sectors of the market was very much a feature of the cycle, and a drive by market players of all stripes towards greater diversification. A push into the insurance area by reinsurers might not necessarily be long-term, he suggested.

What does appear to be increasingly the case, however, is the pursuit of scale in the types of deals being done in Monte Carlo, said Hartigan. He said that larger line sizes and private deals are increasingly the name of the game at the Rendez-Vous and that players will necessarily have to respond to insurer demand for larger capacity plays.

He said that markets such as Lloyd’s were capable of providing solutions to such appetite, but added that a consortium approach may well be necessary as smaller players pursue opportunities in emerging regions.

Citing construction projects associated with the forthcoming World Cup in Qatar as a case in point, Hartigan said that a consortium approach on such construction risk would be able to leverage company relationships and expertise, while opening up considerable opportunities for Lloyd’s and smaller players.

Beazley, insurance, reinsurance, alternative capital, convergence

Bermuda Re