Alternative capital keeping pressure on traditional reinsurers
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The amount and type of alternative capital in the reinsurance market was a key topic of discussion among the reinsurance panelists speaking Tuesday at the Property Casualty Insurers Association of America’s annual conference in Scottsdale, Arizona.
The current level of alternative capital in the reinsurance sector was pegged at $59 billion by Bryon Ehrhart, CEO of Aon Benfield Americas in Chicago. That total, however, is expected to grow to $150 billion by the end of 2018, Mr. Ehrhart said. “The question is how will it be used.”
“I think it’s useful to differentiate between the pension funds which are really focused on the insurance-linked securities space — catastrophe bonds — and the hedge fund phenomena. I think they’re quite different,” said Tad Montross, chairman, president and CEO of General Re Corp. in Stamford, Connecticut. “In this interest rate environment, everybody has been searching for yield,” he said.
“The hedge fund piece is actually a pretty small portion of the $59 billion,” Mr. Ehrhart said, adding pension funds are the main drivers of opportunity in the market.
“One thing that needs to be recognized is that there’s a place for it. It is a solution to be used in conjunction with traditional reinsurance,” said Nancy Bewlay, Armonk, New York-based head of underwriting for casualty, U.S. and Canada, and managing director, casualty underwriting, for Swiss Reinsurance America Corp.
“That’s an important point,” said James Bradshaw, New York-based CEO of Willis Re North America. “There’s a role for every type, and I think the knock-on effect of all of this is the innovation that will hopefully come out of this. The competition has forced people to be innovative and creative.”
“All reinsurance is not the same,” Mr. Montross said.
