News


he soft market will continue into 2015 unless a big catastrophe loss occurs in the final


quarter of 2014, David Flandro, global head of strategic advisory at JLT Re, told Baden-Baden Today. But more interesting questions exist—not around pricing but potential structural changes in the sector, he said. These relate both to the influence of the


happens if there is a really big series of catastrophes. “Those are all


questions but the


interesting really


pertinent one for us and our clients is: how can this capital be used in an environment where


prices are


third party capital that is entering the market and to some different terms and conditions that are increasingly being used. Flandro also notes that the type of third party capital entering the market has changed compared with two and three years ago, and it is being used in different ways. “The continuing argument is about whether


it is hot money or long-term money. We think it’s a bit of both,” he said. “People are also asking how long it will keep


coming in, how will it affect the sector, what happens if there is an interest rate spike, and what


coming


down and other forms of capital might be getting more expensive?” Flandro noted that, partly


David Flandro


driven by these structural changes within the market, there is also a general increase in creativity as insurers and reinsurers strive to find ways to utilise and deploy the excess capital. Private placement catastrophe bonds, for


instance, are proving an attractive bespoke solution for smaller and medium-sized transactions, “as opposed to the 144A route”, and there are attempts to securitise non-


21.10.14 TUESDAY


Third party capital prompts creativity T


the


property cat risks. “Clients have asked about securitisation of whole shares for


account quota


example,” he said. “If you’ve got a lot of capital that wants to get into the market, why not find ways to deploy it? That’s what people are asking. “If you’re an insurance


company and your equity investors have just had five


straight years of 16 percent average annual returns in the equity market, they’re going to be getting a bit more demanding with you. “If you’re retaining a lot of capital and


premium, one way to gear up is to give some of that capital back and to make additional, strategic reinsurance purchases. You can do that more creatively now because the capacity is more willing.” n


THE PROBABILITY OF A METEOR STRIKE TODAY:


0,000003% BUT JUST IN CASE, CONTACT US. DEVK Rückversicherungs- und Beteiligungs-AG


Riehler Straße 190 · 50735 Cologne · Germany Telephone: +49 (0)221 757 3551 · Fax: +49 (0)221 757 393 551 Email: reinsurance@devk.de · www.devk-re.com www.intelligentinsurer.com | www.bermudareinsurancemagazine.com


DAY 2: Tuesday October 21 2014 | BADEN-BADEN TODAY | 13


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