Actuarial news and views from Cape Town and beyond

Structurally Lower Cost of Reinsurance Capital

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Analysts have recently suggested that the structurally lower cost of reinsurance capital presents an opportunity for insurers, as innovations in structures and business models prompt a rethink of insurers risk profiles.

Insurance Linked Securities

The proliferation of insurance-linked securities (ILS) and alternative reinsurance capital is growing and permanent, providing new pools of efficient capital for primary players to tap into for reinsurance and capital management needs.

Innovations that are being seen such as longer-dated catastrophe bonds and the launch of hybrid reinsurance vehicles are prompting a rethink around the risk profile of some insurers as well as a rethink of the role of the insurance carrier in the value chain. Insurers are positioned to benefit from access to reinsurance capital to support their entire risk profile and reduce its cost.

Insurers can learn to embrace and use alternative capital and cheaper sources of reinsurance capital as a way to optimise and rework their risk profile, while gaining better protection and leveraging low-cost capital for efficient growth.

Traditional Reinsurance Pressure

The traditional reinsurance business is set to remain under pressure, with increasing levels of competition, as well as increasing numbers of new hybrid business models seeking to further disrupt the status quo. Reinsurers in turn are expanding their use of the capital markets in response to the increased pressure.

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