Baden-Baden Symposium: Demand for alternative solutions must be met

The (re)insurance sector must make better use of ILS/non-traditional capital and alternative reinsurance structures to meet the changing needs of clients or face losing relevance at a time of heightened risk, industry leaders warned at the Guy Carpenter Baden-Baden Reinsurance Symposium yesterday.

Addressing a packed-out auditorium at the Kongresshaus in Baden-Baden, Scor CEO Thierry Léger highlighted a mismatch between the structured reinsurance solutions being demanded by clients and the industry’s current offering.

“Where demand and offer are not aligned, clients will look elsewhere,” he said. “It is clear that structured solutions will be in higher demand because they are able to respond better to the needs that are out there,” he said.

Léger said the development of alternative structures is becoming a “core component” of Scor’s approach, with the reinsurer looking to double its premium income from structured solutions and its partnerships with third-party capital.

Panellists addressing the 600+ industry executives at the event, hosted in partnership with The Insurer, agreed that the upward trajectory in pricing is creating opportunities for the development of alternative structures to meet capacity needs and facilitate the inflow of new capital.

Also speaking on the panel, PGGM senior investment manager Eveline Takken-Somers said alternative capital has become “structurally embedded” into the reinsurance industry, but stressed that work is needed to enhance the accessibility of the market to the investment community.

“Firstly, there needs to be sufficient alignment with traditional capital so that investors are not having to take on risks that the industry is not willing to take on. Secondly, alternative capital needs to achieve sustainable returns. In recent years, like traditional capital, return objectives for alternative capital have not been met,” she said.

Lloyd’s CFO Burkhard Keese pointed to London Bridge PCC, the UK protected cell company launched in 2021 to offer various ways to deploy funds at Lloyd’s, as a real-world example of how new structures can attract third-party capital.

Now in its second iteration, Keese said the structure has a capital pipeline of $500mn-$1bn and predicted a third London Bridge transformer would be launched to meet demand, helping to bolster investor returns and also tackle challenges such as climate change.

Guy Carpenter’s CEO for EMEA and global capital solutions Laurent Rousseau also highlighted the potential for alternative capital to help the industry meet future challenges.

Commenting on the wider market dynamics in the lead-up to 1.1, Rousseau stressed the importance of ensuring that value is being added at every level.

“It is imperative that all market stakeholders focus on ensuring the relevance and value of what we as an industry provide,” he said.