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Member, Beacon International Group, Ltd.
MONTE CARLO, Monaco — Aon Benfield has revised its outlook and now expects the growth rate of alternative capital to start slowing, executives said during the annual Rendez-Vous de Septembre gathering of reinsurers in Monaco.
The unit of Aon P.L.C. now expects alternative capital to reach $120 billion and $150 billion by the end of 2018 rather than its previous estimate of $150 billion by the end of 2017, said Paul Schultz, president and CEO of Aon Securities in Chicago.
“Alternative capital, in its entirety, we cite as $68 billion, (was) up 6% on a year over year basis (in 2014). That 6% compares with 18% in the previous year,” Mr. Schultz said Sunday. The fastest growing segment is collateralized reinsurance, which he said increased 23% year over year.
The alternative capital market also is seeing lower investor returns.
Annual investor returns for catastrophe bonds through June 30 averaged 2.8% compared with 8.3% through the year that ended June 30, 2014, “so you can see a fairly significant change on a year-over-year basis,” Mr. Schultz said.
Driving the alternative capital market is pension fund investment, which now accounts for some 70% market capital, with hedge fund investors having largely “cycled out” of the space, he said.
Merger trend
Bryon Ehrhart, CEO, Aon Benfield Americas, and Chairman, Aon Securities Inc. addressed mergers and acquisitions, focusing on the need for scale to keep their place in the market.
“If you look at companies with less than $2 billion in shareholder equity, it's almost as if their opinion was disappearing,” said Mr. Ehrhart. “Then as they merge, it reappears.”
“Over the past five years, you've seen some deterioration in the value of their opinion, because it wasn't attached to too much capacity. When they merge, they find a little more voice,” he said.
MONTE CARLO, Monaco — Reinsurance renewals at Jan. 1, 2016, should experience a similar easing of price declines as seen during this year’s June and July renewals, according to Willis Re executives speaking Sunday at this year’s Rendez-vous de Septembre reinsurance summit in Monaco.