The recent World Economic Forum (WEF) in Davos once again provided a fascinating insight into how many of the world’s Heads of State, political leaders and titans of industry are addressing topics such as technological change and global risks.
The WEF’s Global Risks Report 2018 is an uncomfortable read that highlights environmental, cyber and potentially systemic complex risks, as some of the top threats to the Global Economy.
Effective insurance has always played an important role in any risk management strategy but is the (re)insurance industry evolving as fast as the risks that it aims to mitigate? Could the process of transferring and trading some of these risks be done more effectively?
The growing influence of the capital markets on the (re)insurance industry was highlighted once again during the January 2018 renewal season. Despite 2017 being the costliest catastrophe year on record, capital market funds stepped in and replaced trapped and lost capital where traditional reinsurers did not.
Alternative Capital now makes up almost 20% of the total dedicated reinsurance capital (USD 427 bn as measured by Guy Carpenter and A.M. Best). As a result, traditional reinsurers expectations of material rate increases in January 2018 did not materialise, in part, due to the dampening effect alternative capital had on the market.
This fast growing (9% in 2017) and influential part of the market is also looking at how it can access risks more effectively, reduce frictional costs of trading and gain better insights into the market.
There is no doubt that the capital markets have altered the dynamics of the (re)insurance marketplace. For as long as they seek superior returns, which are de-correlated from global equities and fixed income products, the (re)insurance industry will be of interest. Alternative Capital has grown in importance over the last 20 years but there are still many issues to overcome before it can be said to have transformed the (re)insurance marketplace. For incumbent market participants, the opportunities to continue leading and shaping changes in the marketplace are hugely important.
Working with the (re)insurance industry and the capital markets, AkinovA is building a third-party electronic marketplace for the transfer and trading of (re)insurance risks. This will help grow the overall size of the industry, enable greater innovation of products (e.g. Cyber) and reduce the frictional costs of transferring risks. By taking an inclusive approach, AkinovA is bringing together all parts of the (re)insurance value chain to enable this transformation.
If you would like to find out more about AkinovA or how you can get involved, please contact Alexander.Pike@AkinovA.com. You can also access any of our past thought leadership articles from AkinovA’s Passle page.