Alternative capital is likely to survive alongside traditional reinsurance companies as the industry finds an effective balance between the two.

That is the view of Lixin Zeng, the chief executive officer of Validus Re’s alternative capital management unit AlphaCat Managers Ltd, who will be speaking at the Convergence 2014 networking event next week.

Mr Zeng said: “Given its cost advantage in assuming peak catastrophe reinsurance risks, ILS capital has successfully become an integral part of the reinsurance capital structure.

“On the other hand, reinsurance buyers continue to place significant value on the continuity of coverage and an evergreen promise to pay offered by traditional capital.

“As a result, traditional and ILS capital will co-exist and provide complementary benefits to both cedants and investors.

“Furthermore, based on our analyses, we expect to see an equilibrium of the ILS capital flow in the near future.”

This year’s Convergence event will take place on Wednesday and Thursday of next week in the distinctive tent-like structure at Pier 6 in Hamilton. The tent used for last year’s inaugural event was damaged during the high winds of tropical storm Fay, but event organisers have said a replacement structure will be used.

Mr Zeng will be speaking on a panel exploring the topic: “How will the reinsurance industry be capitalised in five years’ time?”

Alongside him will be moderator Paul Schultz, CEO of Aon Benfield Securities; PartnerRe CEO Costas Miranthis, Arch Worldwide Reinsurance and Mortgage Group CEO Marc Grandisson, and Elemntum founding principal Anthony Rettino.

Mr Schultz said he was seeing indications of broadening usage of alternative capital.

“New capital inflows into the reinsurance sector have been significant and many firms, including Aon Benfield, are very bullish about future capital inflows.

“Although capital has largely been deployed into reinsurance opportunities thus far, we are seeing early signs of the capital being utilised directly by clients, potentially altering the traditional underwriting cycle.”

ILS Bermuda co-chairman and PwC Bermuda insurance leader Arthur Wightman said there were multiple, inter-related changes occurring within the industry.

“The risk transfer market is being stressed by both structured and cyclical forces,” Mr Wightman said.

“These forces are not only creating dislocation but also driving innovation. This is manifesting in new ways of offering protection, new operating models and changes in capitalisation of the industry.”

Elementum’s Mr Rettino said he had personally witnessed the evolution of capital models from the early 90s.

“I welcome the opportunity to consider the changing landscape over the next five years and beyond in terms of matching the needs of our investor and insurance company clients,” Mr Rettino said.

“Bermuda is a key base of our operations and the industry at large and an ideal place to consider these topics.”