Alt-Cap is back: new rates & reinsurer needs guarantee growth: Moody’s

Alternative capital is set for renewed growth on the back of resurgent property cat rates, analysts at  Moody's have determined.

"With US property cat reinsurance pricing up more than 50% from the 2017 lows, the market is poised to resume its growth trend," analysts wrote.

“Alternative capital capacity is poised to break out above the $100 billion level and resume its growth trend as higher pricing is likely to attract additional capital inflows from institutional investors.”

The alternative capital market’s capacity has been roughly flat since year-end 2018 at levels in the $94 billion to $97 billion range after nat cat events starting 2017 gave investors a reality check and, at points, trapped capital.

Outside of property cat, driven by skyrocketing rates, alternative capital could grow into new directions as well.

“We are seeing increased investor interest in alternative capital vehicles that can deliver lower volatility return profiles,” authors noted.

RenaissanceRe's move to back its casualty and specialty books quota share via new unit Fontana Holdings shows investors "remain keen to access reinsurance risk."

The supply side also has an interest in growing the market. Reinsurers have firmly taken to market sources in their capital management, Moody's noted.

“Alternative capital will continue to play a key role in enabling reinsurers to reduce their catastrophe exposures, lower their own cost of capital and improve their risk-adjusted returns in the years ahead.”

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