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Alternative capital could take 50% or more of global prop cat market

artemisORIGINAL PUBLICATION HERE 

Alternative reinsurance capital and insurance-linked securities (ILS) could command 50% or even more of global property catastrophe reinsurance market limit as the ILS investor base continues to grow, Brett Houghton of Fermat Capital said at a recent event.

Alternative capacity is set to continue growing, both as the ILS investor base continues to broaden and shows increasing interest in the space, Houghton a Managing Principal at specialist catastrophe bond and ILS asset manager Fermat Capital Management LLC commented during a panel discussion at investment bank Macquarie’s 2014 Bermuda in Boston event last week.

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IBM adds cat bonds to mix as it diversifies return-seeking assets

pensionORIGINAL PUBLICATION HERE 

IBM Pension Plan has invested £60m in catastrophe bonds as it decreases its exposure to higher-risk assets and focuses on investments that will provide a diversified source of return.

Catastrophe bonds are centred on natural disasters and are highly concentrated on US wind risks, such as hurricanes.

The scheme’s most recent annual report, released in July, announced a move into reinsurance made at the end of last year.

Pension funds still attracted to ILS investments, as new mandate shows

ORIGINAL PUBLICATION HERE

There has been a lot of discussion lately about whether pension funds would be among the first investors to lose their attraction to the current market environment of lower reinsurance and catastrophe bond pricing by turning heel and exiting the sector.

However the opposite appears to be largely true, with some pension fund investors keen to increase their allocations to the space, when market conditions allow, while still more want to enter the sector (as evidenced by new mandates) and others continue to do their research into insurance and reinsurance linked investments.

There have been a number of cases in recent weeks of pension funds which have been invested in insurance-linked securities (ILS) for a number of years pulling back as a reaction to the lower pricing environment. For some investors, who entered the ILS asset class purely due to the returns of the last few years, the decline in pricing makes the sector less attractive. This is an expected consequence of the lower price environment, but not all pension funds are the same or have the same motivations.

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Alternative capital, ILS take 20% of catastrophe reinsurance market: Aon Benfield

artemisORIGINAL PUBLICATION HERE 

Alternative reinsurance capital, made up of insurance-linked securities (ILS), catastrophe bonds, collateralized reinsurance, sidecars and ILW’s etc, has captured 20% of the property catastrophe reinsurance market, according to Aon Benfield.

The stunning figure, which clearly underscores the growth of the capital markets and its full-on convergence with traditional reinsurance coverage, is for an annual period of review from Aon Benfield’s latest ILS market report.

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Alternative reinsurance capital up 18% to $59B in first-half 2014: Aon Benfield

artemisORIGINAL PUBLICATION HERE 

The amount of alternative capital in the reinsurance marketplace increased by 18% to reach $59 billion in the first-half of 2014, according to Aon Benfield, accounting for just over 10% of total global reinsurance capital.

According to the latest edition of reinsurance broker Aon Benfield’s Aggregate report, the broker estimates that global reinsurer capital reached $570 billion by the end of June. The number is a broad measure of the amount of capital that insurers have available to them to trade risk and includes both traditional and alternative forms of reinsurance capital.

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Convergence investors: an evolution

Bermuda Re logoORIGINAL PUBLICATION HERE 

We address the changing make-up, focus and expectations of investors in the convergence space as the market broadens and matures.

The options for convergence investors have deepened over time, and with new risks being brought to market with increasing frequency, it is apparent that investors, their appetites and their deployment of capital are adapting to a new norm.
Institutional investors continue to dominate the space, with pension funds taking over from hedge fund and reinsurance investors as the leading players, as returns in the space have come down.
artemis

Positive for ILS investing: McKinsey says alternatives to keep growing

artemisORIGINAL PUBLICATION HERE 

One of the factors that is responsible for assisting the rapid growth of the insurance-linked securities (ILS) and reinsurance-linked investments market in recent years is global investors continuing shift towards alternative asset classes.

Globally, institutional investors, such as pension funds, endowments and foundations, sovereign wealth funds, insurers and cash-rich corporates, have been pouring capital into alternative asset classes as they look for sources of return which complement their strategies and bring certain qualities to their portfolios.

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One reason ILS capital is considered low-cost, efficient and competitive

artemisORIGINAL PUBLICATION HERE 

We often discuss the efficiency of reinsurance capital sourced from capital markets, third-party or alternative sources, as well as its lower-cost nature which can allow it to have a competitive edge over the traditional reinsurance business model.

With some suggesting that the traditional catastrophe reinsurance business model is dying, others suggesting that efficient capital will take segments of the reinsurance market and make them its own, forcing unwelcome change on the markets incumbents, while still more say that low-cost reinsurance capital can out-compete the traditional reinsurer balance sheet, it’s worth looking at what this really means.

Use ILS to reduce emerging market government nat cat exposures, say panelists

ORIGINAL PUBLICATION HERE, MORE ON THE EVENT HERE

Governments from emerging markets should harness insurance-linked securities and the collateralized reinsurance space to address the financial losses arising from natural catastrophes, industry experts have argued.

At the C5 Reinsurance and Capital Markets Convergence Forum in London on July 8 and July 9, panelists and speakers discussed how to address the gap between insured and economic losses arising from natural catastrophes.

In countries with a low primary insurance penetration, governments are left to foot the often substantial bill arising from a natural catastrophe. Typhoon Haiyan, which tore through the Philippines in November 2013, racked up an economic loss of $10 billion — 5% of the Philippines’ total economic output — but only $700 million in insured losses.