Dr. Robert Hartwig, III

A report published by the Insurance Information Institute (III), suggests the world is “Awash in Capital.”  III President Robert Hartwig joins WRIN.tv to discuss the impact of capital that has turned to the insurance and reinsurance sector in a search for yield.

Dr. Hartwig says the report looked at cash holdings of companies worldwide and found that “the world is awash…flush with capital – not just in the world of insurance but, (in) technology, manufacturing and many other industries.” He says cash from pension and hedge funds was “making its way around the world in all forms of alternative investments.”  For many, major investments are in the reinsurance catastrophe bond market and global property and casualty reinsurance business.

According to Dr. Hartwig, reinsurance rates have declined as a result of the transfer of capital into the market, along with solid earnings and low catastrophe losses.

With low investment yields, capital is finding its way into the reinsurance market as companies look for higher yields.  Should the Federal Reserve raise interest rates, Dr. Hartwig says reinsurance rates could rise if the capital starts to leave the market.  He also points out that the rapid growth of alternative capital came during a time period of low catastrophes, “when nontraditional investors…find out that you could lose money, lose your principal on a catastrophe bond…and that lose it on multiple bonds, that may also (affect) the appetite for this instrument.

While CAT bonds and insurance linked securities are here to stay, Dr. Hartwig feels that it is too soon to determine if the reinsurance industry has been altered by the influx of alternative capital.

In part 2 of our discussion with Dr. Hartwig he discusses trends in the primary insurance market, including rising flood and hurricane exposures, cyber risk and drone coverage.

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