Collateralized challenges present opportunity “like no other” to rated reinsurers: Beach’s Hontz

Rated reinsurers have an opportunity the likes of which has not seen in years at the upcoming renewals as clients turn away from the collateralized market over trapped capital and commutation concerns, according to Beach’s Clark Hontz.

The collateralized reinsurance market has been beset with issues in recent years surrounding capital that has become trapped due to catastrophe loss events such as Japanese typhoons and US hurricanes where the final unknown loss quantum has been unclear.

Because of this uncertainty surrounding the availability of collateralized capacity, Hontz, who serves Beach as president, said “rated reinsurance carriers have an opportunity like no other in the past several years”.

Hontz told The ReInsurer that he has not seen clients “flock” to rated reinsurers, but said there was a definite move towards rated reinsurance companies “that will not look for a commutation after a period of time”.

Elsewhere, Hontz said there has been an increase in interest for industry loss warranties (ILWs), with more reinsurers purchasing the specialist protection this year.

Not all of the purchases made have been in the US, Hontz said.

“I’d say 30 to 40 percent of the ILWs we’ve marketed on and executed on are outside of the US, Hontz said.

Supply in the ILW market can match the increased demand, according to Hontz, although much depends on the regions that the client wants covered and the price the buyer is prepared to pay.

“If a client wants to buy a transaction in the US and it’s all-natural perils nationwide, the price is going to be higher than named perils for wind or earthquake,” Hontz said.

“The client might want a price that’s just artificially lower than what the market is, in which case the capacity isn’t there.

“But if the client really wants to take that peak out, which generally speaking is where the ILW market is right now,…[to] protect that unknown event or severity event and they’re willing to pay a price that the market will bear, there’s plenty of capacity in the ILW market these days,” the executive said.