Traditional, ILS reinsurance capital set to grow

CHICAGO – The amount of traditional and nontraditional reinsurance capital is set to grow over the next several years, experts say.

With changes in the structure of reinsurance contracts, reinsurers and investors will likely be more comfortable taking on risks, and increased volatility will raise the demand for reinsurance coverage, they said Monday during a session at the American Property Casualty Insurance Association’s annual conference in Chicago.

Over the past two years, insurers and reinsurers significantly changed how they evaluated property risks, raised retention levels and increased rates, they said.

“The changes that were made are now showing in the results of reinsurers, and I think that is going to allow capital to come back in in different formats,” said Chris Ross, a New York-based managing director at Guy Carpenter & Co. LLC, during a panel discussion.

The ILS market, which accounts for about 15% to 20% of global reinsurance capacity, is set to expand, said Joanna Syroka, director of new markets at Fermat Capital Management LLC, a New York-based ILS investment manager.

In areas such as Florida, ILS provides about 50% of the catastrophe reinsurance capacity, she said.

“As property development continues, as concentration risks continue, our market will continue to need to play that role, to mutually share that risk across a broader and deeper capital pool, if you want to keep providing coverage to areas that demand it the most,” Ms. Syroka said.

The ILS market is also expanding into new areas, she said. For example, the cyber cat bond market has gone from zero to nearly $800 million in limit outstanding in 11 months, she said.

“Our market is no longer just supplemental, passive, following capacity. We have a role to play in leading the development of new markets,” Ms. Syroka said.

The reinsurance market overall is set to grow as the global economy grows over the next several years, but other factors will also drive more demand for reinsurance, said New York-based Andrew Zastrow, business development executive at Munich Re US.

“We are not seeing values go down; we are seeing them go up. We’re seeing the risk volatility go up as well, and I think there’s going to be increased pressure to cede some of that off to the reinsurance market,” he said.