“Convergence” or “alternative” capital, which first entered the reinsurance market with catastrophe bonds, has grown steadily over the past ten years and now also includes industry loss warranties, sidecars and collateralized reinsurance. Convergence capital now accounts for just under 20 percent of the global catastrophe limit.
Adoption of alternative capital in Asia Pacific markets has been slower than in other regions: alternative capital contributed approximately seven percent of primary cat limits across the region in 2016, a modest increase over 2015. Placement of cat bonds and collateralized reinsurance primarily occurs in Japan and Australia, but cedents throughout Asia may benefit in the coming years as third-party investors search for additional income streams through different lines of business and in new geographies.
The amount of 144A cat bond limit outstanding covering risk in the Asia Pacific region has increased by 16 percent since September 2015, from just under USD 2 billion a year ago to slightly less than USD 2.3 billion to date. Several new cat bond issuances during the year benefited Japanese buyers. Cedents based in the Asia Pacific region account for 11 percent of the global cat bond limit outstanding, and capital markets investors have the appetite for more risk in the region. Cedents seeking to diversify reinsurance capital sources are likely to continue to turn to this sector.
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