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Views on significance of Alternative Capital’s market impact

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Analysts at Credit Suisse recently published a report saying how Alternative Capital (Including Investment Linked Securities (ILS) such as Catastrophe Bonds) will continue to pressurize reinsurers to lower their prices; they see Alternative Capital as being a key competitor to Traditional Reinsurance.

They state that Alternative Capital has reached record high levels, citing the high yield of ILS as a significant factor when comparing ILS to more traditional securities.

While to date the biggest effect has come from CAT bonds competing with property catastrophe reinsurance, the analysts see there being more competition with other lines of reinsurance in the future as more ILS are developed.

The majority of ILS capital comes from pension funds and sovereign wealth funds.

Credis Suisse analysts expect alternative capital to exceed $100 billion by 2017.

 

On the other hand, rating agency A.M. Best took a survey of over 400 respondents from the insurance and reinsurance sector. Over two-thirds of respondents felt competition was increasing from within their own industry. Particularly, Property and Casualty respondents cited increased aggression from competitors within the industry as a key source of increased competition.

A.M Best says only 16% of respondents were mostly concerned about competition from non-traditional companies (this includes but is not limited to the emergence of Alternative Capital).

So the survey might suggest that the key reason for lower prices is from aggressive pricing moves by traditional players in the reinsurance market, rather than  from Alternative Capital. At least, it seems reinsurers are less worried about alternative capital than they should be based on the report from analysts at Credit Suisse.

Original articles available at:

http://www.artemis.bm/blog/2015/04/09/alternative-capital-not-the-main-source-of-reinsurance-competition-survey/

http://www.artemis.bm/blog/2015/04/10/alternative-capital-will-continue-to-depress-reinsurance-pricing-credit-suisse/

 

 

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One thought on “Views on significance of Alternative Capital’s market impact

  1. Interesting that Goldman Sachs wrote a report on “eight disruptive themes” in business and listed Alternative Capital in reinsurance along with E-cigarettes, cancer immunotherapy, LEDs, natural gas engines, software defined networking, 3D printing and big data.

    http://www.goldmansachs.com/investor-relations/financials/current/annual-reports/2013-annual-report-files/search.pdf

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