Alternative Capital Here to Stay Says Fitch

Ratings agency Fitch says despite heavy losses in recent years the alternative capital market is set to continue to access the reinsurance sector.

Robert Mazzuoli, Director at Fitch Ratings said that off the back of record ILS investment there was potentially the trend for a leveling of growth but demand remained.

“Alternative capital has grown,” he told an audience in London. “In 2017 we saw investors providing additional capital into the reinsurance space. They did so with the expectation of significant price increases, which did not materialise.

“We saw a loss creep in both 2017 and 2018. We have also seen loss levels revised several times and all upwards.”

The effect was for some investors to question the market’s direction, he added.

“There were certainly some concerns raised by the trends the market saw,” explained Mr Mazzuoli. “There were questions asked about the loss models in respect of whether they were accurately reflecting the impact of climate change on the claims patterns.”

Looking to the future he said there were three key drivers as to why the investors would stick with the alternative capital investment market.

“I certainly do not think that alternative capital will disappear,” he said. “It will remain and I believe grow in importance. Clients will want to remain investing in reinsurance having already made the move.

“The investment yields remain low and the low correlation with other investment risks means it is here to to stay.