Willis Capital Sees More Strategic Restructuring in Reinsurance Programs

July 17, 2015

The reinsurance industry has seen more strategic restructuring within many Florida reinsurance programs in the first half of 2015, with commensurate gains for shareholders and policyholders, according to the latest Insurance Linked Securities (ILS) report from Willis Capital Markets & Advisory (WCMA).

The report contends, however, that the majority of re/insurers are missing the chance to restructure their reinsurance programs to better integrate ILS capacity and make greater performance and efficiency gains.”

Bill Dubinsky, managing director and Head of ILS, WCMA, said: “Ceded reinsurance executives should not focus on using ILS to buy the same reinsurance program as in the past more cheaply. Insurers instead should be looking to restructure their reinsurance programs to better integrate ILS capacity and make more dramatic performance and efficiency gains, ultimately to the benefit of shareholders and policyholders.”

The report says that the reinsurance industry “has been animated by initiatives such as Nephila’s fronting relationship with State National to enter the U.S. direct insurance business.” But, according to Dubinsky, the ventures are more toward the beginning, not the end, of a wave of changes caused by ILS moving from reinsurance to insurance.

The WCMA report on second quarter activity in the cat bond market confirms that the period saw $2.7 billion of non-life catastrophe bonds issued through nine transactions. This follows a strong first quarter in which the market saw $1.5 billion of issuance, and brings total non-life capacity issued year-to-date to $4.1 billion.

Indemnity deals dominated the second quarter of 2015, with all of the 144A transactions issued during the period having used an indemnity trigger.

According to Dubinsky, the increase in indemnity trigger use in part reflects the increasing sophistication of the pool of investors as the market matures. “The trigger migration also broadens the potential pool of sponsors as some insurers remain reluctant to expose themselves to potential basis risk resulting from index triggers, notwithstanding the potential premium savings from doing so,” he said.

Source: from Willis Capital Markets & Advisory (WCMA)

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