By John Lyons
One trend that got surprisingly little attention at the European Insurance Forum this month was the impact of new money flooding into the reinsurance sector and the resulting downward pressure on rates. Quantitative easing and the search for yield, particularly uncorrelated returns, has attracted not just hedge funds but also pension funds and other large institutional investors to the ILS market. Citigroup has put insurance securitisation on this year’s list of disruptive innovations along with such exotic things as 4D printing and digital currency. Most of the focus is still on cat bonds which last year gave a total return of 10.85%, according to the Swiss Re’s Global Cat Bond Index, having averaged nearly 9% per annum over the previous 10 years.
The result is record amounts of capital available and a drop in reinsurance prices to the point where, according to the Financial Times, Warren Buffett’s Berkshire Hathaway has “constrained the volume of business” it does in reinsurance “because of management’s assessment of the adequacy of premium rates”. The only direct reference to these developments at the EIF came from the Central Bank’s Mark Burke who took advantage of a breakout session on the low interest and returns environment to caution reinsurers that the CBI will be looking to see underwriting discipline maintained with an emphasis on rate adequacy, a spread of business and control of growth of less well modelled risks.