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Despite experiencing a significant accumulation of losses over the past 18 months the third-party capital segment nonetheless remains influential in the reinsurance segment and, in particular, the property-cat space, according to A.M. Best.
A.M. Best says third-party investors seem to have become increasingly sceptical following the 2018 cat season, as they have seen capital trapped for a second consecutive year.
For the first time, fund managers are struggling to attract new investors and convince existing ones to reinstate their positions.
The segment had not seen an unprofitable year since 2011 until 2017/18, which saw annualised returns of -5.60% and -3.58%, respectively.
Contributing to this downturn were not just the cat losses, but also the sell-off of CAT bonds, with fund managers seeking to free up capital and deploy liquidity for the renewal of collateralised reinsurance deals.
A.M. Best states that Investors, mindful of the poor results in 2017/18, have started demanding higher returns and reallocating their portfolios to support renewing investments more selectively, which has diminished the inflows of capital into the property cat retrocession space, and has thus pushed renewal rates up into the double digits.
However, despite the impact of the recent losses on third-party capital, A.M. Best says the funds’ efficiency makes them attractive to investors and traditional capacity providers alike, as is evident in the recent number of acquisitions by traditional re/insurers in the space.