If reinsurers can unlock capital, as interviews suggest, then just how well capitalized are these unlockers of capital?
Those who follow the reinsurance market say that overall, this segment of insurance is well capitalized, although there may be a shift in that capital as consolidation occurs.
If new capital in the reinsurance market is becoming available because of off-shore reinsurance operations, then much of that capital is being directed to property-casualty and workers compensation lines of business, says Scott Machut, vice president-special risk reinsurance with ING Re in Minneapolis.
Although the p-c catastrophe reinsurance market is still hard, it may be showing signs of flexing, but that is not so for the life cat market, he adds.
One possible reason, Machut offers is that there is a greater familiarity with the risks associated with p-c cat risks than with life cat re risks.
But, in terms of life reinsurance that does not protect against catastrophic risks, Ron Colligan, a principal with Guy Carpenter, Norwalk, Conn., says that the industry is well capitalized.
Colligan says Guy Carpenter has been involved in the sale of cat bonds on the p-c side of the business and the concept could work on the life side because “mortality contingency is eminently more modelable than the property risk.”
However, he says the current availability of capital in the life reinsurance market is reflected in low prices and, consequently, life reinsurance would be used more than other ways to free capital such as securitizations.
That will continue to be true, Colligan explains, until there is a new and innovative way of securitizing. Until then, it would probably be more economical to reinsure, he says.
Overall, he continues, “capital enhancement is an extremely important part of what reinsurers offer.”
It relieves strain and takes the reserves down, and in essence, allows life reinsurers to be mortality managers, he adds.