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Third-party capital to keep flowing into reinsurance market: Analysis


The flow of third-party reinsurance capital from pension funds and hedge funds into the property catastrophe reinsurance market is unlikely to abate anytime soon, according to an analysis issued by Barclays Capital Inc.

Alternative reinsurance capacity in the property catastrophe reinsurance market has doubled to $50 billion since 2008, Barclays said in its Wednesday release of “Will Third-Party Reinsurance Capacity Permanently Shift Market Dynamics?”

The trend is expected to continue, with the percentage of global property reinsurance capacity provided by alternative sources doubling in the next few years, according to the report.

New York-based Barclays added, however, that alternative reinsurance is unlikely to entirely displace traditional reinsurance, partly because buyers and brokers are “concerned about whether this new capacity will be available after a large catastrophe event.”

Barclays said an influx of third-party capital after large catastrophes could lessen the impact of future reinsurance price spikes.

The report said Barclays expects the trend to cause consolidation in Bermuda, particularly among reinsurers experiencing low return on equity.

“The global survivors are likely to be the largest reinsurers also benefiting from managing third-party capital,” according to the report.