Reinsurers raise billions from capital markets as hurricane concern increases

As insurance professionals become more concerned about hurricane losses, reinsurers are raising more money from alternative sources of capital, such as catastrophe bonds, according to a new report from Guy Carpenter & Company LLC.

The New York-based reinsurance intermediary announced Tuesday the release of its June 2013 renewal briefing, which discusses alternative sources of capital, hurricane activity and renewals in Florida.

About US$10 billion “of new capital has entered the market in the form of catastrophe bonds, sidecars and collateralized structures over the last 18 months,” Guy Carpenter stated in a press release.

“Capital emanating from alternative markets, including catastrophe bonds, collateralized reinsurance, industry loss warranty (ILW) products and retrocessional reinsurance, has grown significantly during this period,” the firm noted.

Guy Carpenter added these alternative sources of capital now account for about US$45 billion, or about 14% of the “global property limit.”

Guy Carpenter also predicts “elevated hurricane” activity this year.

“There is a general consensus that 2013 will see activity that meets or exceeds the 1995-2012 average of the current ‘active period.’”

Guy Carpenter added that Hurricane Sandy, which was designated a post-tropical storm when it made landfall near Atlantic City, N.J. on Oct. 29,  “served as a reminder of the loss potential of hurricanes in the Atlantic, even for areas where landfalls are comparatively rare.”

Insurance carriers “will be closely monitoring this year’s Atlantic hurricane season as its outcome could influence the direction of reinsurance pricing into next year’s renewals,” according to Guy Carpenter, which is a subsidiary of New York-based Marsh & McLennan Companies.

Florida, however, has not had hurricane losses for seven consecutive years, according to the briefing.

“Reinsurance pricing has fluctuated moderately over the last two years during the Florida renewals,” the company stated, adding there is a “significant  excess of available capacity.”