Private equity/hedge fund activity in reinsurance market not likely to reach pre-crisis levels

The participation of alternative sources of capital in the reinsurance market has rebounded since the economic crisis, but not to pre-crisis levels, reports Standard & Poor’s.
In its report, Global Reinsurers Enter 2010 on Stronger Financial Footing but Face Weaker Pricing, S&P’s notes that hedge funds participation in reinsurance and retrocessional deals has remained relatively low since the beginning of the capital market crisis in 2008, including the Jan. 1, 2010 renewal season.
S&P’s rated $3 billion in catastrophe bond issues in 2009, a significant increase compared with $2 billion in 2008, the report says.
But, issuance remained significantly lower than 2006 and 2007 peak levels, when S&P’s rated $4.7 billion and $5.8 billion in catastrophe bonds, respectively.
“We expect hedge funds and private equity investors to slowly reenter the reinsurance industry when economic and market conditions become more robust, although it is unclear whether they will participate to the same degree as they did before the capital markets crisis,” the report says.
“We believe catastrophe bond issuance will likely increase further in 2010.”