An influx of new capital is reshaping the reinsurance market, with around $20 billion entering the market over the past two years.
This is according to Guy Carpenter, which added that the influx of capital is through investments in insurance-linked securities (ILS), funds and sidecars as well as the formation of hedge fund-related reinsurance companies and collateralised reinsurance vehicles.
The report explores how the use of capital markets-based capacity provides cost savings for public entities by helping them build surplus, reduce public debt and limit the risk that natural perils can pose to the state’s balance sheet.
Guy Carpenter added that the amount of limit placed utilising ILS and collateralised products continues to grow, and some markets are broadening the line of business and product focus.
Utilisation of capital markets capacity in the first six months of 2014 saw a continuation of the growth trends seen in 2013.
“Guy Carpenter and GC Securities have pioneered these innovative forms of risk transfer, and we are committed to finding the optimal form of risk mitigation for our clients from the vast array of potential solutions across all markets,” said David Priebe, vice chairman, Guy Carpenter.
One major innovation over the past year has been the transfer of risk directly from the risk bearing entity to the capital markets, without an intervening traditional insurance company.
“The MetroCat Re bond, whose cedant is the captive insurer of the Metropolitan Transportation Authority, transferred the risk associated with storm surge and flooding directly to capital markets investors without a traditional insurance company acting as an intermediary.
“As the quality of catastrophe modelling continues to increase and as capital markets investors become more comfortable with innovative terms and conditions, more types of risk may directly access the capital markets in ILS form,” said the report.
Guy Carpenter, ILS, Bermuda, David Priebe