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Acceptance grows as more capital flows into reinsurance


Capital markets keep gaining traction in the reinsurance space, and players see continued growth despite lingering concerns, according to sources speaking on the sidelines at the Property Casualty Insurers Association of America annual conference Oct. 25-28 in Hollywood, Florida.

More participants are utilizing capital markets coverage.

“In the last 24 months, you've seen reinsurers that I think have recognized that we've reached the end of the beginning, meaning they have accepted the challenge and started incorporating it into their underwriting capital structures,” said Bryon Ehrhart, CEO of Aon Benfield Americas in Chicago.

“So, leading reinsurers in the last 24 months have more alternative capital that has been incorporated into their value proposition for our clients,” said Mr. Ehrhart.

Capital markets coverage is gradually losing its “alternative capital” status as it becomes a more familiar option.

“I think it's just capital. It's just more capital flowing in. You can call it whatever you want.” said Rod Fox, managing partner for TigerRisk Partners in Stamford, Connecticut. “And what we see and hear is that there's still a significant amount of it that wants to come in.”

Mr. Fox is bullish on the sector.

“We think it's more than doubling over the next five years,” said Mr. Fox. “Our number was $180 billion to $200 billion, and I still think that's still within the ballpark.”

Aon Securities Inc. put the total as of June 30 at $68.4 billion.

Catastrophe bonds expand

Private catastrophe bonds are helping fuel growth.

Expansion of the private catastrophe bond market has been rapid, having grown to $846.9 million of capital raised in 19 deals through Oct. 13 of this year from $561.5 million in 17 deals in all of 2014 and $181.2 million in six deals in 2013, said Cory Anger, global head of ILS structuring at GC Securities, a division of MMC Securities Corp., in New York.

Private catastrophe bonds offer clients the potential for lower limits and costs.

“It's done in a way where you can do smaller limits, something under $75 million, and it's done in a less rigorous way with less paperwork and modeling so that the expenses don't overwhelm the all-in pricing,” said Ms. Anger.

One source, however, reiterated a lasting concern hanging over the capital markets.

“Obviously it hasn't been tested yet with a big event,” said Steve Levy, president, reinsurance, for Munich Reinsurance America Inc. in Princeton, New Jersey.

But he remains confident overall.

“Our sense is that the investors who are really committed to the market will likely remain after a major event, but there will be some investors who will decide to withdraw from the marketplace once it is really tested with a major event,” said Mr. Levy.

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