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Alternative capital for reinsurers rises to $44B

The flow of capital is happening in a macroeconomic environment that is “challenging, but manageable.”
The flow of capital is happening in a macroeconomic environment that is “challenging, but manageable.”

Approximately $10 billion of new alternative capital has entered the reinsurance market during the year past, raising the amount of alternative capital in the industry to about $44 billion, according to a new report.

Moody’s Investor Service discloses this finding in the September 2013 edition of its “Global Reinsurance Outlook.” The report examines, among other trends, the macroeconomic environment for reinsurance, the influx of alternative capital, the profitability and interest rate outlook for reinsurers, and the market’s evolution.

The flow of capital to the reinsurance space is happening in a macroeconomic environment that Moody’s describes as “challenging, but manageable.” The credit ratings agency projects a U.S. GDP growth rate of about two percent in 2013 and 2.5 percent in 2014.

In the Euro zone, Moody’s is forecasting a negative GDP growth in 2013 of zero to a negative one percent; and then zero to one percent positive growth in 2013.

“These figures reflect a still difficult macroeconomic environment, which inherently constrains the growth of primary insurers and, in turn, suppresses demand for reinsurance. While downside risk remains, the slowly improving economic environment in the U.S. and Europe presents a manageable operating environment for reinsurers.” What follows is Moody’s estimated alternative reinsurance capacity in June 2012 and April 2013.

 

June 2012

April 2013

Catastrophic bonds

$13.5 billion

$15 billion

Retrocession

$6.5 billion

$10 billion

Collateralized reinsurance

$9 billion

$13 billion

Industry loss warranties

$5 billion

$6 billion

“What began with a trickle of capacity more than fifteen years ago has turned into a flood of capital entering the reinsurance market from institutional investors in the form of catastrophic bonds, collateralized reinsurance vehicles and industry loss warranty contracts,” the report states. The survey adds that the $44 billion in alternative capital now accounts for about 15 percent of the global property catastrophe reinsurance limit placed.

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