Thu 26 Jun. 2014

Third Party Capital - the end of insurance as we know it?

The Insurance Institute of London's Young Members' Committee, in association with Lloyd's, held the second of its 2014 Educational & Networking Programme events to an audience in Gallery 11 at Lloyd's on 26 June. The presence of alternative risk capital (ARC) has been growing significantly in recent years. ARC contracts include catastrophe bonds, collateralised reinsurance, industry loss warranties, contingent capital, and sidecars. This market is now estimated to total over $50 billion, with predictions that this could increase to over $100 billion.

Some argue that the industry’s ability to access deeper pools of capital is an innovation that is good for capital providers, insurance consumers and the industry itself, whereas the alternative view point is that an abundance of capital in the market, much of which is seen as potentially temporary, leads to rating that is not sustainable in the long term.

Consideration was given by Professor Alan Punter, Visiting Professor in Risk Financing, Cass Business School, City University, as to whether ARC is simply a “soft” market phenomenon, or whether there has been a fundamental shift in the relationship between capital and underwriting which is here to stay in the “mainstream” of our market. He personally believed it was here to stay and that members should learn to embrace it.

By the end of this lecture members will have gained an insight into:

  • the main types of ARC in the current market
  • their key features
  • how they have developed
  • the key players

Listen to the audio and download the presentation (pdf) here