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Alternative reinsurance markets likely to endure: S&P exec

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NEW YORK — The alternative capital flowing into the reinsurance space is providing new options for coverage as concerns about the funding's longevity abate.

“There are a lot of capital flows coming into the alternative reinsurance markets,” said Jason Porter, associate director for Standard & Poor's Corp.'s North American insurance team within the financial institutions ratings group.

It is a growing market, with estimates of its size ranging from $40 billion to $50 billion, much of which is not expected to dissipate, said Mr. Porter during a discussion Wednesday at Business Insurance's Risk Management Summit in New York.

“Although the absolute level of capital could fluctuate based on opportunistic interests and what they do, we do think that the long-term investors are here to stay,” Mr. Porter said. “We don't see that this long-term capital is going to disappear.”

The availability of such alternative capital provides increased flexibility for insureds.

“From our perspective, we look at this as a pairing of the capacity allowing it to support in ways to which the traditional cover may not be responding,” said Cory Anger, global head of insurance-linked securities structuring at GC Securities, a unit of Guy Carpenter & Co. L.L.C.

“It is still a complementary product. Traditional insurance has been around for a very long time and has performed for a very long time,”’ said Ms. Anger.

Capacity is coming into the market “quite aggressively,” said Duncan Ellis, managing director and leader, U.S. property practice, for Marsh L.L.C., who added that Asian markets are becoming more active in utilizing alternative capacity.

Asian markets have catastrophic typhoon and earthquake risks similar to those in other markets, said Mr. Ellis. Insurers like to write such business, “but not all in one place,” said Mr. Ellis. “We see that diversification coming into play.

Mr. Ellis said that the majority of Asian reinsurers are looking to write business on a “follow-line” basis, meaning they are not looking to lead the placements, but participate “alongside a global leader like an XL or an AIG.”

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