December 24th, 2014

Capital Markets Capacity: Growth Dominates in 2014: Part I

Posted at 1:00 AM ET

The influx of new capital into the reinsurance industry constitutes the largest change to the sector’s capital structure in recent memory. Over the past 24 months, approximately USD20 billion of new capital has entered the market through investments in insurance linked securities (ILS), funds and sidecars as well as the formation of hedge fund-related reinsurance companies and collateralized reinsurance vehicles.

The amount of limit placed utilizing ILS and collateralized products continues to grow and some markets are broadening the line of business and product focus.

Utilization of capital markets capacity in the first six months of 2014 saw a continuation of the growth trends seen in 2013. Revealing a widening of application, capital markets investors continue to be drawn to the (re)insurance space primarily due to the advantages it offers as a non-correlating asset class. Also, the recent availability of meaningful risk opportunities continues to drive investors to focus on the insurance-linked security space.

The performance of capital markets-based risk transfer capacity relative to traditional asset classes through different financial market cycles (including interest rate cycles) demonstrates the value of this asset class and its non-correlative basis. The figure below shows the cumulative return profile of 144A catastrophe bonds (as a proxy for all capital markets-based risk transfer capacity) versus various other capital market asset classes.

All Charts_June Renewal 2014

Link to Part II>>

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Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.

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