Wall Street meets Front Street
How do institutional investors assess the variety of reinsurance asset classes that are available, and how do investment decisions vary with changes in the reinsurance cycle? As the abundance of capital creates supplier-demand disruption and compresses margins, our panel looks at whether the influx of capital is set to slow?
Giving a perspective on the current state of market, Jeff Sangster, EVP and Chief Financial Officer, Validus Holdings, said: “I don’t think we are going out on a limb by saying we believe this is a structural change in the market with the alternative capital.”
In a lot of ways, Mr Sangster said: “That change is adding efficiency to the market. Taking out for certain risk intermediaries where the investors can support that risk directly without the additional input from those intermediaries is a more efficient approach. That said, that’s not the right approach for every risk, so there is a balance that needs to be found there and I think we are in the process of finding that balance.”
Michael Hamer, Partner, Albourne Partners, said: “I would say that there’s been a very rapid rate of innovation and some of the innovations out there have not yet been tested by severe events, so, as has happened in other areas, that may show some flaws. But generally speaking, what has happened in the last five to six years has made the industry potentially a lot more efficient.”
Discussing what differentiates one reinsurer from another, Jay Cohen, Managing Director, Bank of America Merrill Lynch Global Research, said: “What distinguishes them is frankly what happens over time. What happens when there are catastrophe losses - how do they fare? How do they manage their capital? There are really three things I am looking
for them to do: Price the risk well, manage the risk well, manage their capital well. Unfortunately, you only see that over time.”
Mr Sangster said: “It seems fairly certain that the alternative capital is here to stay. Traditional reinsurers and insurers are not going away, that’s always going to be a piece of the industry. The big question is where that balance ends up. Is it 50-50, is it 70-30, one direction or the other? I think when that question gets answered ... when that shift finally settles that will be the interesting thing - to see how the industry looks.”
He added: “I don’t think you want to be purely in one camp or the other because there is going to be some combination at the end of the day.”
10 Bermuda Reinsurance Conference 2014
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