Insurers, reinsurers to benefit as $100 billion of alternative capital enters market

Insurers and reinsurers will benefit from $100 billion of alternative capital that will enter the market over the next five years, as the cost of underwriting capital is reduced, Aon Benfield says in a new outlook report.

Reinsurers will engage in three broad categories of transactions with investors, the company says in its September 2013 Reinsurance Market Outlook.

Insurance-linked securities (ILS or cat bonds), will lower the cost of underwriting capital supporting peak tail risks for those companies, Aon says.

Meanwhile, sidecars can lower the cost of underwriting capital across the portfolio risk spectrum, and the formation of asset management divisions can allow reinsurers the opportunity to accept asset management mandates from investors.

“The benefits of this new capital will begin to extend beyond property catastrophe and mortality risks that are common features of the current ILS market and extend into many other reinsurance lines where loss frequency and severity are more predictable,” Byron Ehrhart, chairman of Aon Benfield Analytics noted in a statement.

“The January 1 renewal market for our clients will benefit materially from an excess of traditional reinsurance capacity and new alternative capital flows over light demand growth for reinsurance capacity,” he added.

“Our clients should expect to benefit from a competitive market even if a moderate hurricane season should develop.”