In the wake of Hurricanes Harvey, Irma, and Maria, the property and casualty insurance and reinsurance markets are positioned to step in and provide perhaps the largest series of storm-related payouts in history. And for the first time, certain financial investors will contribute to insurance payouts as well, as providers of alternative capital to the reinsurance markets. For many participants in the alternative capital market—or equivalently, the insurance-linked securities market—2017 will represent the first major test of their risk selections and operational capabilities. Milliman consultant Aaron Koch offers perspective in this article.
The infusion of alternative capital into catastrophe reinsurance has reshaped the market and continues to ripple through the industry as it expands to include new structures and cover new perils. The influx of alternative capital (along with relatively low catastrophe activity) has driven down catastrophe reinsurance prices to historically low levels, which has caused reinsurers to try to diversify into other lines of business. Their move into other lines has led to lower prices overall, prompted underwriters to modify terms and conditions in order to compete, and incentivized reinsurers to pursue mergers and acquisitions (M&A) activity to achieve scale and diversification. Actuary Karl Goring provides some perspective in this Milliman Insight paper.