Capital Influx Could Displace up to $40 Billion of Traditional Equity Reinsurance Capital
Monte Carlo, Monaco, 8 September, 2013, The influx of third-party capital into the reinsurance market may displace
up to $40 billion of traditional equity capital, which could either be returned to shareholders or
redeployed elsewhere in the re/insurance market, according to Willis Re, the reinsurance arm of Willis Group
Holdings plc, the global risk advisor, insurance and reinsurance broker (NYSE: WSH).
The current trajectory of growth in third party capital suggests it could account for up to 30
percent of the global property catastrophe reinsurance market within a few years, representing approximately $100 billion
of capacity, according to panellists at the Willis Re Monte Carlo Rendezvous Press Conference.
John Cavanagh, CEO of Willis Re, commented: “Discussions so far have centred on the effect third party
capital is having on rates and the competition it is producing in the property catastrophe reinsurance
market. A future influx of $100 billion would, however, have a number of profound consequences. As
third party capital enters the property cat reinsurance market, it is going to crowd out conventional
equity capital. That equity capital has to go somewhere.”
Cavanagh added that if $100 billion of third party capital enters the reinsurance market, then even allowing
for significant returns of capital to shareholders, there could be as much as $20 billion excess
equity capital to be deployed.
He continued: “You could think of this as being the equivalent of 10 well capitalised start-up companies,
and the effect on the market place would be profound. If capital is redeployed, much of
it could go into direct insurance businesses. Many of the hybrid specialty reinsurers are already implicitly
going down this path.”
The influx of third party capital, coupled with changes to reinsurance buying patterns and regulatory complexity is
leading to growing complexity in the reinsurance market.
Cavanagh said: “Solid analytical advice and market knowledge through intermediation is needed now more than ever.”
Also speaking at the event, Tony Ursano, CEO of Willis Capital Markets & Advisory, said that he
expects a very active capital markets and mergers and acquisitions M&A) environment for the remainder of
2013 and going into 2014.
Ursano said: “On the capital markets side, we expect a very active cat bond calendar, including new
and renewal sidecar financings, additional activity around new insurance-linked securities fund formations and strategic partnerships, as
well as more new hedge fund sponsored reinsurers.
“We expect activity in the insurance M&A arena to be robust, driven by a number of factors.
These include increased CEO and board level confidence derived from higher public valuations, a continued focus
on growth, scale and diversification, private equity involvement as both buyers and sellers, and the gradual
consolidation of the reinsurance sector driven in part by third party capital involvement.”
About Willis Re
One of the world's leading reinsurance brokers, Willis Re is known for its world-class
Analytics capabilities, which it combines with its Reinsurance expertise in a seamless, integrated offering that can
help clients increase the value of their businesses. Willis Re serves the risk management and risk
transfer needs of a diverse, global client base that includes all of the world's top insurance
and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The
broker's global team of experts offers services and advice that can help clients make better reinsurance
decisions and negotiate optimum terms. For more information, visit www.willisre.com.
About Willis Capital Markets & Advisory
Willis Capital Markets & Advisory, with offices in New York, London
and Hong Kong, provides advice to companies involved in the insurance and reinsurance industry on a
broad array of mergers and acquisition transactions as well as capital markets products, including acting as
underwriter or agent for primary issuances, operating a secondary insurance-linked securities trading desk and engaging in
general capital markets and strategic advisory work.
Willis Group Holdings plc is a leading global risk advisor, insurance and reinsurance broker. With
roots dating to 1828, Willis operates today on every continent with more than 17,000 employees in
over 400 offices. Willis offers its clients superior expertise, teamwork, innovation and market-leading products and professional
services in risk management and transfer. Our experts rank among the world’s leading authorities on analytics,
modeling and mitigation strategies at the intersection of global commerce and extreme events. Find more information
at our website, www.willis.com, our leadership journal, Resilience, or our up-to-the-minute blog
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