ILS growth outpacing traditional reinsurers

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  • Going up: The growth of alternative capital in the reinsurance sector is illustrated in this graph. In the first quarter the total stood at $66 billion, representing a 3 per cent rise since the end of 2014

    Going up: The growth of alternative capital in the reinsurance sector is illustrated in this graph. In the first quarter the total stood at $66 billion, representing a 3 per cent rise since the end of 2014
    ((Graphic: Aon Benfield Analytics))


Alternative reinsurance capital is growing at a faster rate than traditional reinsurance capital.

That trend has been identified in an analysis of the market by Aon Benfield, the global reinsurance intermediary and capital advisor of Aon.

Total reinsurer capital reached $580 billion globally in the first quarter, a rise of 1 per cent since the end of 2014.

However, despite a small decrease in the overall value of the catastrophe bond market, alternative reinsurance capital climbed 3 per cent to $66 billion during the same period as sidecars and collateralised reinsurance gained.

A number of catastrophe bonds matured during the first quarter, resulting in the cat bond market dipping to $22.1 billion at the end of March, down from a 2014 year-end peak of $26 billion.

The issuance of $2.96 billion in new cat bonds between April and the end of June brought the value of outstanding cat bonds to $23.47 billion.

The reinsurance market was boosted by an increase in reinsurance purchases by two US government entities, Florida Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund.

In 2011, Florida Citizens had $580 million of private risk transfer, but since then its private market capacity has grown and stands at approximately $4 billion, according to Aon Benfield’s estimates.

The Florida Hurricane Catastrophe Fund this year secured $1 billion of reinsurance excess, its first private market coverage since its inception in 1994.

The positive impact of these purchases, together with the growth in the alternative reinsurance sector was slightly offset by a contraction in shareholders’ funds in a number of major reinsurance companies. This was party attributable to the weakening of the euro.

Global insurer capital has increased 1 per cent since the start of the year, and is estimated at $4.2 trillion. Capital growth this year has been notable in Japan and China.

Natural disaster insurance losses for the first half of 2015 were roughly $14 billion, less than half of the 10-year (2005-2014) average of $33 billion.

Aon Benfield, in its “Reinsurance Market Outlook” report for June and July, noted: “The US remains in the midst of a record-setting stretch without a major hurricane landfall (above Category 3)”. The last such event was Hurricane Wilma in 2005.

The arrival and forecast strengthening of El Nino, a warming phase in a cycle of ocean water in central and east-central areas of the Pacific Ocean, may herald an increase in insured losses in the Asia Pacific region.

El Nino years have historically seen higher insured losses as a result of an eastward shift in the landfall locations of tropical cyclones, with Japan and Korea generally experiencing more typhoons.

Elsewhere, forecasters expect hurricane activity in the Atlantic to be below average this year as a result of cooler sea surface temperatures in main storm development region and expected above-average wind shear in the upper atmosphere, factors linked to the distant El Nino phenomenon.

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Published Jul 3, 2015 at 8:00 am (Updated Jul 2, 2015 at 7:29 pm)

ILS growth outpacing traditional reinsurers

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