The roller coaster ride engendered by the entry of large amounts of alternative capital into the reinsurance market – originally seen as a threat – has turned out to be a major factor in strengthening the capital available to reinsurers to underwrite major risks, according to Aon Benfield’s recently issued January 2015 “Reinsurance Market Outlook.”

Aon Benfield added that “quality of the financial security for the reinsurance market has never been higher.”

Specifically, that has allowed reinsurers, “like their insurer counterparts,” to take less risk per unit of capital than they have previously. What’s more, the alternative capital influx has led to price drops for traditional reinsurance, but that has proven to be a market plus. Aon Benfield said this has given the sector a much higher value proposition than it has previously, creating a valuable combination of quality and price.

Reinsurers’ capital hit $575 billion last year, including $62 billion of deployed alternative capacity. Both are records, according to the report, which noted that the growth rates in reinsurance capital and alternative capital deployed were 6 and 25 percent, respectively.

Aon Benfield said that the alternative capital influx will likely change market conditions in the future for property insurance and business interruption, more than it has, or will, for casualty reinsurance.

“Fears of its disruptive impact to other sectors of the reinsurance market are overblown,” Aon Benfield said.

Aon Benfield’s assessment of the reinsurance market over the past year reflected that “demand for property catastrophe reinsurance grew at a slightly higher rate in 2014 and at January 2015 than in prior periods; however, the demand growth rate was still less than the growth in catastrophe reinsurance supply.”

“Growth in demand for multiple-year programs, aggregates, underlying and overlying capacity were most notable. Continued material progress has been made in improving terms and conditions for cedents,” Aon Benfield’s report said. “Growth in demand for casualty reinsurance programs has also improved with highly customized structures, terms and conditions – partner selection is highly emphasized by reinsurers and cedents.”

Aon Benfield said these trends will continue through the April, June and July 2015 renewal cycles. Its report noted that insurers are moving ahead into the new year with a selection of accretive underwriting capital choices that is the “widest” it can recall.

As well, the report notes insurers’ growth and consolidation efforts “have found complementary support from partners in the reinsurance market.”

Source: Aon Benfield