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AM Best analyst sees demand for re/insurance-linked investments

An AM Best analyst believes there is huge investor demand for re/insurance-linked investments.

This is good news for Bermuda, which has become a major ILS centre, as it continues to be the jurisdiction of choice for the incorporation of sidecar and transformer entities and collateralised reinsurance/retrocession vehicles.

It was back in 2008 that amendments were implemented to Bermuda's Insurance Act to create a new class of insurance company known as special purpose insurers (SPIs).

Of 13 new insurers registered in Bermuda in the first quarter of 2013, eight were SPIs with total premiums of over $93 million. This included three SPIs underwriting over $1 billion of catastrophe bonds and Insurance Linked Securities (ILS).

Stefan Holzberger, managing director of Analytics for AM Best Europe, feels demand from investors for ILS is so high that it far outstrips demand.

Industry blog Artemis.bm quotes Mr Holzberger as saying: “There is great demand in the market for cat bonds and industry loss warranties mostly originating from hedge funds, pension funds and private equity.

“The premise is that insurance-linked securities are not highly correlated to other asset classes and offer appealing returns as compared to other fixed income investments. Currently, demand for these investments far exceeds supply. This has brought the pricing down for natural catastrophe risks, especially in the US”

Artemis said the impact that all this capital has been having on traditional reinsurers is currently limited due to the narrow scope of the investments contained in this asset class.

Artemis said Mr Holzberger also said: “It should be noted that capital market interest in reinsurance is currently limited to cat risk.”

Holzberger cited alternative reinsurance capacity and third-party reinsurance capital as factors in the reinsurance industries strong capitalisation. Reinsurers currently have too much capital on their hands, which he called a “good problem” for them to have, Artemis said.

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Published June 24, 2013 at 9:00 am (Updated June 23, 2013 at 2:22 pm)

AM Best analyst sees demand for re/insurance-linked investments

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