New Capital ‘Transforming the Reinsurance Market’

Around US$20bn of new capital has entered the reinsurance market in the past two years, through investments in insurance-linked securities (ILS), funds and the special purpose vehicles dubbed ‘sidecars’, as well as the formation of hedge fund-related reinsurance companies and collateralised reinsurance vehicles, reports Guy Carpenter.

The risk and reinsurance specialist, a subsidiary of Marsh & McLennan Companies, has published a report focusing on the growth in the ILS market over the past year and recent developments in catastrophe bond structure and risk transfer.

The report also explores how the use of capital markets-based capacity provides cost savings for public entities by helping them build surplus, reduce public debt and limit the risk that natural perils can pose to the state’s balance sheet.

A notable major innovation of the past year has the transfer of risk directly from the risk-bearing entity to the capital markets, without an intervening traditional insurance company. The MetroCat Re Ltd. bond, whose cedent is the captive insurer of New York’s Metropolitan Transportation Authority (MTA), transferred the risk associated with storm surge and flooding directly to capital markets investors without a traditional insurance company acting as an intermediary.

“As the quality of catastrophe modeling continues to increase and as capital markets investors become more comfortable with innovative terms and conditions, more types of risk may directly access the capital markets in ILS form,” the report notes.

The amount of limit placed utilising ILS and collateralized products continues to grow, and some markets are broadening the line of business and product focus. Utilisation of capital markets capacity in the first six months of 2014 saw a continuation of the growth trends seen in 2013.

The full report, entitled
‘Reinsurance: The Capital Markets Evolution Continues’
, may be downloaded at


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