New capital could reach $100 billion in five years
The reinsurance industry may attract about $100 billion of new capital from alternative sources over the next five years as pension and hedge funds boost investment, according to broker Aon Plc.
And competition from third-party capital could be as significant to the re/insurance industry as Bermuda's emergence as a reinsurance hub, Artemis reported, citing an S&P report released as the industry gathers for its Rendez-Vous de Septembre conference in Monte Carlo.
Reinsurers, brokers and primary carriers, including insurers in the Lloyd's of London market are meeting in Monte Carlo this week to begin negotiations for next year's property and casualty reinsurance policies.
John Nelson, the chairman of Lloyd's of London, told AM Best that a rush of capital into the re/insurance industry could potentially cause systemic problems akin to those of the banking sector during the financial crisis.
AM Best vice president Robert DeRose said third-party capital, estimated at around $45 billion, is making the market more competitive for traditional reinsurers.
“In this environment, S&P see a likelihood that the better prepared reinsurers will be in a position to capitalise on the new dynamic and thrive, while those that aren't prepared and willing to adapt may find themselves marginalised and subject to potential consolidation,” Artemis reported.
Reinsurers remain stable in terms of outlook according to S&P, all the rating agencies currently maintain a stable outlook on reinsurers largely due to their strong capitalisation.
“It will be interesting to see whether the outlook remains the same after the January renewals or how it might be affected by a large catastrophe loss event,” Artemis said.
But according to Lloyd's of London, even a major disaster would be unlikely to push up reinsurance prices given the amount of capital currently available to back policies.
Richard Ward, chief executive officer of Lloyd's, told Bloomberg in an interview: “What is going to change the rate movement? Clearly it's not going to be a major catastrophe.
“We had that in 2011 — the costliest year for the Lloyd's market. In 2012, we had superstorm Sandy, which was not a small event.”
See more coverage of the Monte Carlo gathering on Page 10 of today's Business section