All capital will blend: Andersen
Alternative capital is now entering
the market at many more points
in an attempt to get closer to the
risk—and the logical conclusion is that some
insurance-linked securities (ILS) funds will
look to launch rated carriers, Eric Andersen,
co-president of Aon, told Monte Carlo Today.
“They are increasingly moving down the
chain; all the different forms of capital will
increasingly blend,” Andersen said.
“It is just different buckets of capital, but
the system is built around the rated carrier
and that might be the competitive advantage
He agreed that some of the recent losses
will put pressure on rates, especially on the
retro side, but added that the conversation
around rates was far from a straightforward
one about their increasing.
He said most cedants wanted to be treated
on their own merits, while rate hikes on the
primary side would benefit many reinsurers
working via quota share deals anyway.
“All buyers want to be treated on their
merits, based on their individual performance
and that of their portfolio. Meanwhile, I am
not seeing reinsurers jumping up and down
“I would call it a healthy tension in the
market: buyers in Europe or Japan do not
want to be paying for losses in Florida, and
vice versa,” he said.
He agreed that price negotiations had
become more regional in recent years—as
opposed to the global cycle the market has
seen in the past. He said this was partly a
function of the better data and analytics
“Companies have to compete in their own
market. They do not want to be paying for
someone else’s loss,” he added.
Asked about the changes in the Lloyd’s
market, he said he felt its senior management
were doing “all the right things” but added
that the market needs to establish what sets it
apart on the global stage.
“Value comes from doing something
distinct, rather than just providing capital,”
he concluded. l
Trapped capital the driver behind ILS looking at rated paper
The challenge of solving the problem
of trapped capital is one of the drivers
behind a number of insurancelinked
securities (ILS) funds considering the
possibility of launching reinsurers with rated
balance sheets, Peter Dunlop, partner at law
firm Walkers, told Monte Carlo Today.
He said that recent losses had exposed
this as a structural problem in deals that
use special purpose insurers (SPI) backed by
“While a number of parties are trying to
solve this problem by altering so-called buffer
tables, which determine at what exposure point
capital gets trapped even if the full trigger has
not been reached, there is no obvious solution
to this problem in the long term,” Dunlop said.
“It is at the discretion of the buyer to
release the capital and they will only do so
when they are comfortable they have a final
loss number,” he said.
“Loss creep is unavoidable with some types
of cat events and that shows that maybe these
structures are less preferable to rated platforms
not on some risks.
“While there is an aspiration in the market
to solve the issue through uniform contract
wordings, this will be very difficult. That is
why there is more talk about the possibility of
creating rated balance sheets,” he added.
Playing into this market sentiment, he
praised moves by the Bermuda Monetary
Authority to create a new class of reinsurer,
the regulation and capital requirements of
which would be specifically designed to suit
companies operating in the collateralised
The idea was to fill a gap in the market that
exists between the SPI model and the heavily
regulated class 3a or 3b reinsurers.
“As the nature of collateralised products has
become more complex, especially with some
players using outwards reinsurance as part of
the collateral package, the need for something
like this has become clear,” Dunlop said.
“We expect that although some players
using the SPI structures may move up to use
it, other players may also move down and seek
a lighter regulatory touch.
“The BMA is very good at consulting with
the market and will listen to what the market
wants,” he concluded. l
Monte Carlo Today Day 4 Wednesday September 11 2019
It is at the
discretion of the
buyer to release