Alternative capital in the insurance industry has quadrupled since 2010, now estimated at $95 billion in the H1 of 2018, according to a report from Swiss Re.
In a report on alternative capital in the insurance industry, Swiss Re said that alternative capital had proved to be a “reliable source of capacity during the active 2017 natural catastrophe season”.
The report noted that the insurance-linked securities (ILS) market remained liquid throughout 2017 and offered diversification benefits and attractive returns, according to Swiss Re.
Swiss Re revealed that investor capital in the ILS market had been “more than replenished” throughout 2017.
The reinsurance company explained that alternative capital will “continue to grow and curb the volatility of the overall reinsurance underwriting cycle”, but conceded that it was less viable for long-tail lines like general liability and workers’ compensation, where the claims process can be lengthy.
“The main purpose of alternative capital was to increase insurance capacity via the vast capital market and the securitisation of risks”, the report said, “alternative capital remained niche until after the great financial crisis when institutional investors became increasingly aware that ILS offered diversification benefits and attractive returns compared to similarly rated corporate bonds”.
“Before 2017, some analysts doubted if alternative capital capacity would remain active after larger natural catastrophe (natcat) events. However, the ILS market remained liquid throughout 2017 and investor capital was more than replenished.”