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Collateralized product the “catalyst” for convergence growth: A.M. Best

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Fully-collateralized structures are, and will continue to be the main catalyst for growth in a convergence market that’s “here to stay” and which plays a vital role in the risk transfer and mitigation process, according to insurance and reinsurance ratings agency A.M. Best.

The insurance-linked securities (ILS), catastrophe bond, collateralized reinsurance, reinsurance sidecar and ILW sectors have witnessed robust growth in recent years, as the increased appetite of institutional investors to access reinsurance exposures for yield and diversification spikes, resulting in the growing acceptance of alternative risk transfer structures and ventures by sponsors and cedants alike.

And according to ratings agency A.M. Best further growth is expected, in a convergence market that “is here to stay and will continue to play an important role in the risk transfer and risk mitigation process for both property/casualty and life/health catastrophe exposures.”

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Reinsurance; it’s all about the capital efficiency

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It’s not just insurance-linked securities (ILS), capital markets players and investment conglomerates that can enter the reinsurance market boasting a reduced cost-of-capital and lower return requirements than incumbents. Even a traditional insurer can follow this approach.

One of the key messages coming out of this years Monte Carlo Reinsurance Rendez-vous is the subject of capital efficiency.

In a reinsurance market where almost everyone, including the core business model, is coming under pressure, maintaining efficiency in your capital and capacity is becoming increasingly important to players, as they navigate the challenging market environment.

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New ‘whole portfolio’ ILS asset class could be six times bigger than cat bonds

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Vario Global Capital, the new venture unveiled by Guy Carpenter and Vario Partners last week, will help create a new asset class of insurance-linked securities (ILS) that will revolutionise the way insurers manage their capital and which could grow to be six times bigger than the now established asset class of catastrophe-linked bonds.

Nick Frankland, chief executive of Guy Carpenter’s EMEA operations and director of Vario Global Capital, told Monte Carlo Today that the venture represents a natural evolution for the reinsurance industry—but that this product could become very important over time as insurers increasingly use it as part of their capital structures.

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Alternative capital now “firmly embedded” in reinsurance: Moody’s

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Alternative reinsurance capital, in structures ranging from catastrophe bonds and insurance-linked securities (ILS), to sidecars and collateralized reinsurance structures, is increasingly embedded within the market, with re/insurers increasingly relying on it, according to rating agency Moody’s.

Speaking at a media briefing in London today, James Eck, Vice President and Senior Credit Officer at Moody’s Investors Service, said that ILS and alternative capital has become part of the fabric of the re/insurance market and is a key feature impacting its prospects.

“The flow of capital continues to be strong and now really firmly embedded in the sector,” Eck explained, adding that to the traditional insurance and reinsurance companies this “presents reinsurers with both a threat and an opportunity going forward.”

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Lexington CEO comments on data/risk modeling, 2015 hurricane season, capital and commoditization.

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During the 2015 National Association of Professional Surplus Lines Offices (NAPSLO) Convention in San Diego, WRIN.tv spoke with Jeremy Johnson, President & CEO of Lexington Insurance, where he discusses the transformational impact data and modeling has had on all industries like insurance, the “benign” 2015 hurricane season and the danger of insurance being commoditized due to the influx of alternative capital.

Mr. Johnson points out that 90 percent of the world’s data has been created in the last two years. The insurance industry increasingly revolves around the ability to collect, aggregate and analyze data, It helps analyze, differentiate and price risk, and to decrease the volatility of insurance businesses. It also enables the industry to move away from commoditized capital as a value proposition, and more towards risk expertise.

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Lloyd’s actively looking to develop alternative capital structures

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Lloyd’s of London has acknowledged that the reinsurance world has changed and that it is time that the world’s oldest insurance market caught up with recent trends. In response, Lloyd’s is actively looking to develop structures to welcome alternative capital into the market.

In its half-yearly results today, the Lloyd’s Chairman John Nelson and Chief Executive Inga Beale, explain in a statement that the market is actively exploring ways to welcome alternative capital into the market, to the benefit of its existing operators and members.

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Collateralised reinsurance focus for London (LMG) ILS task force

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The insurance-linked securities (ILS) and reinsurance industry task force, set up by the London Market Group (LMG) and HM Treasury to make London a hub for ILS business, is to focus initially on collateralised reinsurance business.

Established in May, the LMG task force has been set the goal of making London an attractive hub and domicile for all types of ILS business, including catastrophe bonds, collateralised reinsurance and other third-party capital backed insurance structures.

The initial concern had been that London would simply seek to throw its hat into the cat bond domicile ring, a space that has become crowded in recent years as many offshore domiciles have sought to compete with market leader Bermuda and other domiciles such as the Cayman Islands.

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Alternative reinsurance capital growth outpaced traditional: Aon Benfield

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Alternative capital continues to grow its presence in the global reinsurance industry, rising by 6% during the first-half of 2015 to $68 billion, while traditional capacity fell by 3%, according to international reinsurer Aon Benfield.

Alternative capital’s share of the global reinsurance market’s capacity totalled $68 billion at June 30th, 2015, representing a 6% increase from the end of 2014 and is “reflected in near record issuance levels of catastrophe bond issuance, further expansion of fully collateralized placements and growing utilization of ‘sidecar’ vehicles,” said Aon Benfield.

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Argo expands use of third-party capital in its Lloyd’s Syndicate 1200

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International specialty insurance and reinsurance firm Argo Group is deepening its relationship with third-party capital investors by expanding the use of investor money, alongside its own, in its Lloyd’s of London Syndicate 1200.

Argo is no stranger to third-party capital and letting capital market investors work alongside its to share in the returns of its underwriting.

Argo’s fully collateralized reinsurance sidecar, Harambee Re, was renewed for the 2015 underwriting year, as a reinsurance only vehicle as the re/insurer looked to continue to work alongside investors in its reinsurance book.