“Alternative capital preceded the financial crisis”

14.08.2015 – “Alternative capital coming into insurance or reinsurance space preceded the current rate environment and it preceded the financial crisis”, said Nunzio Masone, BNY Mellon, at a New York roundtable in New York about the positives and potential pitfalls of the additional capital moving into the re/insurance market over the next years.

Is alternative capital an investor elexir or placebo? “It is only natural to find sources of capital that help markets that need capacity, have constraints on counterparty risk, or have desires to create new and innovative products that the market needs. I do not think any of that is necessarily unusual. The thing that is unusual is clearly the depth and breadth of that scope and some of the models that have come into market, both in the property and casualty space, as well as the life and annuity space”, said BNY Mellon Manager Nunzio Masone at a roundtable in New York to discuss why investors are inscresingly interested in the so-called alternative capital sector of the re/insurance industry.

He views the additional capital as more evolutionary than revolutionary. “The whole issue of catastrophe bonds has existed for a significant period of time. Insurers are made aware that the risk was taken off, either through reinsurance or through the capital markets. The reason we are seeing the evolution of this into more permanent types of capital at this point in times is not so much the natrue of quality of correlated returns in a low rate environment, but it is how investeros were underserved during and to some extent, since, the fincancial crisis.”

Masone thinks private equity is not permanent capital. He views it more as sequential capital. “Now, can you transition the source of your financing to fund long term assets through a more efficient vehicle? Well, there is a guy in Omaha that’s done it for 50 years. It is an interesting model because the persistency of those liabilities is what really becomes the issue that is critical for returns here, and how the innovation of those products are managed and how they are priced in the market,” Masone concluded. (vwh/dg)

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