Commercial Risk Europe: Reinsurance buyers can expect long-term benefits
10 April 2014
As traditional reinsurers look to match the lower pricing supplied by the abundant alternative capital in the market buyers can now realistically hope for a future without heavy margin loading for peak zones, Aon Benfield said this week.
According to the intermediaries April Reinsurance Market Outlook the transformative impact of alternative capital flows into the reinsurance industry continues to benefit reinsurance buyers. It says that traditional reinsurers have begun to employ the alternative capital flows to enhance their value propositions and match the price points available directly from these funds.
"While the traditional reinsurance market has only begun its transformation, it is clear that it will match the new lower disaggregated (diversifying) price-points of alternative investors. Reinsurance buyers are now able to imagine a future where very heavy margin loadings for peak zones may not be part of the long-term future", said Aon Benfield.
At the 1 April reinsurance renewals, which are heavily Japanese-based, ceding companies 'continued to see material benefit from record traditional and alternative capital dedicated to reinsurance', the firm said. It expects continued benefits to be realised by reinsurance buyers at the key June and July renewal dates.
Global reinsurer capital stood at $540 billion at the end of 2013, according to Aon Benfield figures. This is an increase of 7 per cent over the previous year's end. This calculation includes both traditional and alternative forms of reinsurer capital and represents around a 60 per cent increase over 2008 levels.
Growth in traditional reinsurer capital was supported by robust net income generation as companies benefited from low catastrophe loss activity and continued reserve releases.
As a result of growth in capital across the traditional and alternative sectors, reinsurer capacity remains abundant in all regions, it added. "(At 1 April renewals in Japan) Traditional reinsurers provided capacity at improved pricing with the Tohoku Earthquake now three years past and alternative capital maintained a presence in Japan earthquake risk. Relationship continuity continues to be highly valued by cedents particularly where significant value was realised in the Tohoku event", said Aon Benfield.
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