Willis reports shift in cat reinsurance market towards third party capital providers
July 23, 2012 by Canadian Underwriter
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The catastrophe reinsurance market may be on the cusp of a strategic shift, with third party capital providers set to take on increasing amounts of peak catastrophe risk in the future, according to Willis Capital Markets & Advisory (WCMA), part of the global insurance broker, Willis Group Holdings (NYSE: WSH).
The latest Insurance-Linked Securities (ILS) Market Update from WCMA, Strong Momentum Continues into 2012 Hurricane Season, notes that 2012 Q2 saw new issuance volume of $2.1 billion of non-life capacity through seven transactions. That’s up substantially from 2011 Q2, when four deals saw new issuance volume of $600 million.
WCMA predicts that private unlisted vehicles, along with the growing specialist independent catastrophe risk funds, will take an increasing share of the catastrophe risk market in collateralized form over the medium term.
“Reinsurers have noted the success that RenaissanceRe has enjoyed with a significant third party capital management strategy (DaVinci Re has now been operating since 2001),” the report notes. “The idea that an existing underwriting platform and balance sheet can be leveraged by earning fees from capital partners is an attractive one.”
Reinsurers can write more attractive business without stressing capital requirements or introducing greater volatility into their results, WCMA says of the advantages of working with third party capital providers. “It also means that capital relationships are in place that can be ramped up in appropriate market environments.”
As for investors, they gain access to an established brand and infrastructure, including existing customer and broker relationships, plus the underwriting skills and sophisticated risk analytics that reinsurers employ, WCMA notes.
The full report can be found at:
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