The architecture of optionality
For several renewal cycles, reinsurance buyers had a relatively immediate set of concerns: whether capacity was available, what it would cost and how much risk they would have to retain.
That conversation is changing. Stronger reinsurer balance sheets and more plentiful capital have returned a degree of choice to cedants, creating what Scott Cobon, head of strategic solutions in Bermuda at Gallagher Re, dubbed “the return of optionality for clients”.
“The question is no longer simply whether capacity is available, but how clients can use this market to improve their capital position, volatility profile and long-term resilience,” Cobon told Bermuda Re+ILS.
While this shift doesn’t fundamentally affect the role of the broker, it does push the doors of possibility open for their clients. Cobon explained, in this environment, cedants may buy additional limit or lower retentions, seek aggregate or frequency protection, secure multi-year capacity or combine traditional balance sheet capacity with collateralised and capital markets solutions.
The significance, for Cobon, lies in what those choices allow clients to consider: “The best discussions are therefore focused on architecture rather than simply price. Clients are using a more constructive market to decide which risks to retain, which to transfer and which form of capital is best suited to assume them.”
Building the capital architecture
That shift becomes particularly relevant as insurers become more granular about where they deploy their own capital.
Rather than making portfolio-wide decisions to retain or transfer more risk, Cobon said insurers are differentiating between classes, geographies, volatility characteristics and reserve durations, as well as their confidence in pricing and the availability of efficient protection.
“At board level, the question is, increasingly, where do we have conviction to grow, where do we need protection against volatility and where is capital being consumed without an adequate return?”
The answers can produce very different priorities across a portfolio: “In property catastrophe, improved market conditions may allow clients to revisit retentions, frequency protection, aggregate covers, or additional limit. In casualty, the conversation remains more cautious and is often focused on reserve confidence, loss trend, adverse development and capital drag. In MGA and delegated authority business, the focus is often on scalable capital partnerships, fronting capacity, quota shares and portfolio oversight.”
Traditional reinsurance remains central to most catastrophe, casualty and specialty programmes, but not every challenge fits neatly into a single annual tower or occurrence-based structure.
Cedants may be dealing with frequency volatility, secondary perils, clashes or accumulations across several classes. Others face elevated retentions, collateral constraints or capital tied up in older liabilities. In casualty, long-tail reserve uncertainty and adverse development add another layer.
The resulting structure could be an aggregate stop loss, multi-year cover, structured quota share, adverse development cover or a hybrid combining prospective and retrospective protection.
“The most effective bespoke transactions are not necessarily the most complex. They are the ones that start with a clearly defined problem and match the right form of capital to that problem,” Cobon said.
Legacy as headroom
Capital considerations are not confined to prospective risk.
“Historically, some legacy solutions were viewed as tools for distressed or discontinued portfolios. That perception has changed,” Cobon said. “Management teams are increasingly using retrospective solutions to release capital, simplify operations, reduce reserve uncertainty and create headroom for future growth.”
Much of that growth is in casualty and other long-duration portfolios, where social inflation, litigation trends and reserve uncertainty can create earnings volatility and capital drag. Loss portfolio transfers and adverse development covers are among the retrospective tools available to address those older liabilities.
Matching capital to risk
These principles become increasingly important as the range of available capital expands. Alternative capital is already embedded in the risk transfer ecosystem, but Cobon sees its development as a chance for better alignment: “The biggest opportunity is not to force alternative capital into every part of the market, but to match the right form of capital to the right risk.”
Property focused cat bonds and collateralised structures, for example, are well suited to clearly modelled, shorter-tail risks with defined triggers, including natural catastrophe and cyber catastrophe exposures. Sidecars and collateralised quota shares can offer another route where investors are strongly aligned with a rated balance sheet.
“Longer-duration casualty, life, annuity, mortgage, legacy and structured reserve risk is also attracting meaningful capital, but only where investors have confidence in asset liability management, collateral mechanics and transparency,” Cobon added.
Capital markets often view these opportunities through a different economic lens. Whereas traditional reinsurers typically consider factors including underwriting margin, loss ratio, portfolio fit and capital charges, Cobon said capital markets participants are often focused on whether the risk, duration, liquidity and collateral requirements can generate an attractive risk adjusted IRR or ROE.
Where the risk is well defined, the economics transparent and the structure compatible with investors’ return requirements, that can widen the capital available to solve a cedant’s problem.
Analytics are helping make those comparisons more precise. Cedants can assess the marginal benefit of individual layers, different retentions, interactions between classes and the capital value of competing structures, while reinsurers and investors can consider expected loss, tail risk, basis risk, collateral and return expectations through a more consistent framework.
Towards integrated capital formation
“The next phase is not traditional reinsurance versus ILS. It is integrated capital formation, where rated balance sheets, collateralised capital, index products, issuing platforms, analytics and broker-led structuring work together to create more efficient solutions for cedants and more transparent opportunities for investors,” Cobon said.
Bermuda has an important role in making that possible. Its combination of underwriting expertise, capital, regulatory sophistication and execution capability means reinsurers, ILS investors, regulators, lawyers, actuaries, insurance managers, trustees and brokers can work through the different components of complex transactions within one market.
Cobon went so far as to say: “Bermuda remains one of the few markets where that ecosystem exists at scale and where participants are experienced in developing bespoke, time-sensitive structures.”
Cobon points to Gallagher Securities’ Arthur Re platform as one example of how that infrastructure can be used. The platform provides a repeatable structure for index catastrophe bond issuance, with a pre-arranged service-provider framework and streamlined documentation designed to reduce execution friction and timelines.
Cobon expects strategic solutions to move further upstream, helping clients first identify whether the underlying problem is capital consumption, earnings volatility, reserve uncertainty, a constraint on growth or collateral inefficiency, before deciding which form of risk transfer should address it.
He also expects more solutions to be delivered through platforms rather than constructed entirely as one-off transactions, giving clients faster access to different pools of capital without sacrificing execution quality or investor confidence.
“The firms that succeed will not just be those with the longest product menu. They will be those that can diagnose the issue, access the right capital, structure the transaction, evidence the economics through analytics and execute with speed and discipline,” he said.
In a market where cedants once had to concentrate on finding capacity, the return of optionality is opening a broader question – not just how much capital is available, but how its different forms can be aligned with the risks insurers actually want to retain, transfer and grow into.
Read the full Bermuda:Re+ILS Annual 2026 here.
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