Influx of non-traditional reinsurance boost industry capital

  Global reinsurance capital has grown to record levels on the back of an influx of funds from non-traditional sources that are changing the face of the market, according to leading intermediaries. As a result of the ample capacity, recent renewals have, in most cases been stable, they add.

According to a briefing on the April renewals by Guy Carpenter, “dynamic capital growth and ample reinsurance capacity” has resulted in a “relatively stable” market place.

With non-traditional capacity now contributing an estimated 14 percent of global property catastrophe capacity, the broker said that the convergence of traditional and alternative capital sources “is changing the marketplace.”

It is having a “significant impact” on property catastrophe business in the US, the broker adds, where traditional reinsurance pricing has decreased on similar coverages from the 1 January renewal. This environment also benefited reinsurance buyers in the Asia Pacific region, for which 1 April is a significant renewal date.

Reinsurance pricing in Asia generally stabilised or fell marginally as the adverse conditions experienced in the wake of the Tohoku earthquake in Japan and Thailand flooding in 2011 generally gave way to modest softening.

“Diversified yield seeking investors are now adding material pressure (in terms of price and value competition) and benefits (in terms of lower cost underwriting capital) to the reinsurance market. We expect material changes to the capital structure of the largely equity financed reinsurance market as material new flows of capital are integrated into reinsurance underwriting capital,” he said in the Aon Benfield Aggregate (ABA) report.

The broker estimates that global reinsurer capital reached a record $505 billion at 31 December, 2012. This is an increase of 11 percent ($50 billion) on a year previously.