Reinsurance Market Outlook 2021: Top Companies, Trends and Growth Factors Details for Business Development

The Emergence of Alternative Capital in Reinsurance' analyzes the development of alternative capital in the reinsurance industry, and also discusses the major types of alternative instrument. The emergence of alternative capital in reinsurance has led the industry to change structurally. The abundant flow of capital, along with growing development and innovation in the insurance-linked securities (ILS) space, is transforming the reinsurance industry. Alternative capital has emerged as a disruptive force, and has the potential to transform the market, or create a new one.

The majority of transactions related to alternative instruments are largely executed in the property catastrophe market in the US. The alternative capital market is predominately absent in other segments and sub-segments in the insurance industry.

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The report also discusses the growing prominence of alternative instruments as an asset class. Alternative instruments have brought recognition to reinsurance as an investment strategy. Low correlation, low volatility and diversification are motivating investors to invest in alternative instruments. Investments in ILS are least correlated with the cyclic nature of the economy and the boom-bust cycle of capital markets. The state of the economy and behavior of financial markets cannot influence loss events in an insurance contract. Alternative instruments are less volatile than traditional asset classes, as the performance of the underlying asset – in this case the insurance risk – is not linked to the behavior of the capital market.

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Scope
  • This report analyzes the significance of alternative capital as a risk-transfer strategy.
  • It analyzes the impact of alternative capital on the traditional reinsurance industry.
  • It discusses innovation in the alternative capital industry with respect to product development to suit the requirements of investors and ceding reinsurers.
  • It discusses the popularity of catastrophe bonds and the growing dominance of collateralized reinsurance as alternative instruments.
Key Highlights
  • Traditional reinsurers are increasingly incorporating alternative capital strategies into their business models. Reinsurers are playing an active role in managing new capital and facilitating transactions in the alternative market on behalf of investors. Simultaneously, several reinsurers have collaborated with independent fund managers to execute transactions using alternative instruments such as catastrophe (cat) bonds, sidecars, industry-loss warranties and collateralized reinsurance.
  • The cat bond market is heavily skewed towards risk associated with US perils. The majority of capacity in the cat bond market is utilized by risks associated with natural disasters, such as storms, floods, hurricanes and earthquakes. US multi-peril, US-named storms and hurricanes, and US earthquakes together accounted for 53.4% of cat bonds outstanding as of November 2016 according to Artemis, which provides business information dedicated to alternative risk transfer.
  • Collateralized reinsurance overtook cat bonds as the dominant source of capital in 2013, in terms of providing overall capacity to the alternative market. This trend has continued, and the capacity of collateralized reinsurance expanded at a higher growth rate than cat bonds during 2013–2015. It accounted for 56.8% of the total capacity in the alternative market in 2015.
Reasons To Buy
  • Build an understanding of the securitization of insurance risk, and recognition of insurance-linked securities (ILS) as an asset class.
  • Develop an insight into how alternative capital has emerged as a disruptive force, the outlook for the global reinsurance industry.
  • Gain an understanding of the leading jurisdictions catering to the ILS market.
  • Develop an understanding of the different types of insurance risk targeted by alternative capital investors.
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