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because the property catastrophe market is becoming more and more saturated which has resulted in peak peril pricing compression.


Redcliffe: From an ILS manager’s perspective, there could potentially be an opportunity thinking about it from a co-mingled fund perspective. There are investors with different return expectations and profiles, so there is the opportunity to perhaps structure different funds with different return expectations. As a result, the ILS manager would not be diluting its existing investors by deploying lower return reinsurance risk in an existing fund.


Pension funds typically have much lower return expectations, so if you have a fund dedicated to those lower return expectations, there’s the opportunity to bring in more investors and fold them into that fund, as opposed to their existing fund which has a higher return expectation.


Is that something that convergence managers are considering?


Maria Marsh: Following up on what Craig said, we have five co-mingled funds, each with a different strategy. Three of those are closed to new capital as we don’t see the same opportunities in the higher nominal return space as in the past. The reason we’re not taking more capital is to prevent disruption in the market. We are waiting to see how things play out.


We do however see a lot of interest in funds with a lower return target, and most of that money is coming from pension funds. That works for them and so we’ve been able to keep those funds open, but overall we try to stay intuitive with our assets and if the opportunities are not there we would look to return capital.


Niall Farrell: The Bermuda Monetary Authority (BMA) has seen an increase in Special Purpose Insurer (SPI) registrations in 2013—this comprised existing Bermuda insurers expanding their product offering as well as new market entrants. In 2014, a number of insurers have revised their ILS strategy as the market has developed.


Bermuda has an established ILS market. Some of the registration activity comprises established insurers either expanding their products or supporting


28 Bermuda Finance | 2014


new capital. The market is evolving and insurers in the marketplace have adjusted their strategy and approach in response to those changes.


A lot of SPIs register at the end of a financial year but don’t intend to commence business until the beginning of the next year.


Do you consider that a moderation of the level of capital that’s coming into the space is a positive?


Paschal Brooks: I don’t think it’ll have much of an impact at all. Convergence capital makes up 15 percent of the market right now. So if you’re talking about historical growth patterns, potential interest in the market is growing, although the amount of capital inflow has been steady at about 15 percent growth per year.


The reinsurance market as a whole, absent an event, has double-digit growth. Some of that gets taken off when companies pay dividends or return capital, but by and large the overall capital growth is a function of the non-convergence part of the market. I don’t believe a change in the acceleration or deceleration of convergence capital is actually going to have that much of an impact.


Kramer: The size of the capital markets is so big compared to the reinsurance market that just a small percentage of that capital entering the sector will be significant. When you look at the alternative assets they have in other sectors, they’re not doing very well. The market is so big that it’s hard to control, so we’ll see what happens.


Marsh: Although convergence makes up a small part of the market, it’s amazing how much influence it has had on the market in general. I wouldn’t agree that pricing pressure is coming from fund capital, as many have noted the rate pressure comes at least as much from the traditional market.


We do think that beyond pricing pressure, new ways to deploy capital are putting pressure on the reinsurance companies; it shines a light on their business model and what they could be doing more efficiently.


Adderley: It’ll be interesting to see how much rates go up following an event, and how big that event will have to be. Because of the amount of money sitting on the sidelines, those rates might go up very quickly, but come down very quickly because of the amount of capital that might come in.


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