Monte Carlo 2014: $20bn of alternative capital has entered the industry over the past two years

The influx of capacity from the capital markets continues to reshape the reinsurance market, according to Guy Carpenter.

In a new report the reinsurance broker said that approximately $20bn of new capital had entered the market over the past two years from the capital markets.

This includes investments in insurance-linked securities (ILS), funds and sidecars, as well as the formation of hedge fund-related reinsurance companies and collateralised reinsurance vehicles.

The report also found that the use of capital markets-based capacity provides cost savings to public entities by helping them build surplus, reduce public debt and limit the risk that natural disasters can impose on a country’s finances.

Guy carpenter also predicted that more risk-bearing entities would transfer their risks directly to the capital markets without the intervention of a traditional insurance company.

The MetroCat Re bond, whose cedant is the captive insurer of the Metropolitan Transportation Authority, transferred the risk associated with storm surge and flooding directly to capital markets investors without a traditional insurance company acting as an intermediary.

Guy Carpenter said: “As the quality of catastrophe modeling continues to increase and as capital markets investors become more comfortable with innovative terms and conditions, more types of risk may directly access the capital markets in ILS form.”

The company added that the amount of limit placed through ILS and collateralised products continues to grow, and some markets are broadening the line of business and product focus.