What is alternative capital in reinsurance?
Alternative reinsurance capital is characterized by two twists on the traditional reinsurance arrangement. First, a new breed of investor is seeking out the reinsurance market—hedge funds, sovereign wealth funds, pensions and mutual funds. Second, the deals are structured differently.
What are alternatives to reinsurance?
Another alternative to traditional reinsurance that has gained significant momentum in recent years is the use of alternative risk transfer via the capital markets. Primary insurers are increasingly exploring the use of investment vehicles such as catastrophe bonds (also known as cat bonds) as a way to offset risk.
Is reinsurance an alternative investment?
Reinsurance has relatively recently emerged as an alternative asset class, one that is more closely affected by the risks of natural catastrophes and not those of the capital markets. As a result, it inherently serves well as a portfolio diversifier.
Why is collateral required reinsurance?
Many reinsurance transactions are collateral-backed to mitigate against counterparty default risk in respect of the reinsurer. The amount of collateral required to back a reinsurance transaction will depend on the type of reinsurance and the reinsurer’s creditworthiness.
What is conventional reinsurance?
A traditional reinsurance firm is one backed by equity capital, with shareholders and a traditional capital model. These reinsurers are often the established players many of which have been involved in the reinsurance market for years.
What is alternative capital markets?
Alternative capital comes from the financial markets: hedge funds, mutual funds, sovereign wealth funds, pensions and institutional investors.
What is 3rd party capital?
Third-party capital is typi- cally accessed through securitized instruments (such as catastrophe bonds or loss warranties that pay out based on industry-wide loss events) or private deals between an investor and a primary carrier (such as collateralized reinsurance).
Can I invest in reinsurance?
Investing in the reinsurance industry presents an opportunity to add an asset with equity-like returns that are uncorrelated with the risks and returns of other assets in their portfolios (stocks, bonds and other alternative investments).
What is retrocession in reinsurance?
(Insurance: Reinsurance) Retrocession is the reinsuring of a risk by a reinsurer. A retrocession is placed to afford additional capacity to the original reinsurer, or to contain or reduce the original reinsurer’s risk of loss.
What is underwriting in reinsurance?
Insurance underwriters are professionals who evaluate and analyze the risks involved in insuring people and assets. Insurance underwriters establish pricing for accepted insurable risks. The term underwriting means receiving remuneration for the willingness to pay a potential risk.
What is outwards reinsurance?
Definition. The enterprise ceding (giving up) the risks is said to place outward reinsurance. Reinsurance ceded by an insurer or reinsurer, as opposed to inwards reinsurance which is reinsurance accepted. (
What is the difference between inward and outward reinsurance?
The enterprise accepting the risk is the reinsurer and is said to accept inward reinsurance. The enterprise ceding the risks is the cedant or ceding company and is said to place outward reinsurance.
What is facultative inward?
Facultative reinsurance is reinsurance purchased by an insurer for a single risk or a defined package of risks. Usually a one-off transaction, it occurs whenever the reinsurance company insists on performing its own underwriting for some or all the policies to be reinsured.