The Emergence of Alternative Capital Reinsurance

1 Mar 2017

Timetric’s new insight report on the ‘Emergence of Alternative Capital in Reinsurance’, explores how alternative capital has dramatically altered the balance of supply and demand in the reinsurance industry.


Alternative capital refers to a range of instruments issued by insurers reinsure risks that they prefer to cede to investors instead of traditional reinsurers. These risks are predominantly US property catastrophe risks, but in recent years the scope of these risks have expanded geographically and by line of business.


The influx of capital into reinsurance from the capital markets began in the mid - 1990s with the advent of catastrophe bonds, in part in response to the damage caused by Hurricane Andrew in 1992. Since then the market has developed to incorporate instruments such as collateralised reinsurance and reinsurance sidecars, which have further facilitated the risk-return preferences of investors entering the market. 


Some selected key findings of the report are:


•    Rates in the property catastrophe market fell consistently during 2013–2015 in part due to the excess capital offered by investors to insurers looking to hedge their exposure to large risks

•    The lower transaction costs for (re)insurers and the greater control provided to investors over the specific risks they agree to cover, have along with other factors, made collateralised reinsurance the largest source of capacity in the alternative capital market. These contracts tend to be suited to investors following less liquid strategies in search of higher returns 

•    The benign property catastrophe environment over the past few years has raised concerns that a large proportion of investors may not be prepared for large loss event. The capacity of the alternative capital market could shrink quite rapidly if such an event occurs, as the risks posed by catastrophe bonds become much more salient to investors.


About this report


This information is taken from the Timetric report: ‘Emergence of Alternative Capital in Reinsurance’


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About Timetric


Timetric is a leading provider of online data, analysis and advisory services on key financial and industry sectors. It provides integrated information services covering risk assessments, forecasts, industry analysis, market intelligence, news and commentary.


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Source: Company Press Release