Alternative Capital Made Up 22 Percent of Property CAT Limits in 2017

According to a recent report from Swiss Re, alternative capital made up 22 percent of all property catastrophe limits in 2017, comprised of 11 percent collateralized reinsurance, 7 percent catastrophe bonds, 3 percent side cars, and 1 percent industry loss warranties.

The amount of alternative capital was around $95 billion in the first half of 2018, supporting a current annual premium volume of approximately $5 billion, said Swiss Re. This compares to $340 billion of global capital in the traditional reinsurance segment, which is based on an annual premium volume of $270 billion per Swiss Re.

While alternative capital was intended for increased insurance capacity, insurance-linked securities also provided diversification and respectable returns resulting in a separate catastrophe risk asset class, said Swiss Re.

The report maintained that alternative capital works well with "capital-intensive peak risks that are short-tail in nature and that have become increasingly transparent and commoditised through the availability of advanced (third party) risk models."

It continued, "alternative capital is not well suited if the claims adjustment processes is lengthy and disputes tie up capital and collateral."

According to Swiss Re, alternative capital "will remain a significant force in the fast growing natural catastrophe market."