Property catastrophe reinsurance is causing a feeding frenzy for investors as they seem extremely willing to plunk their money into an alternative investment that does not correlate with their other portfolio bets.
The tens of billions of dollars flowing into the reinsurance industry are being funneled into securities including catastrophe bonds and other insurance-linked reinsurance investments. This bountiful capacity augments traditional sources in the venerable reinsurance industry, although even reinsurers are creating the collateralized securities and selling them to investors. For buyers—primary insurance companies the world over—the lines are blurred insofar as who is taking the reinsurance risk.
While some industry observers see the new capacity as a paradigm shift in the fundamental business of reinsurance, others point out that catastrophe bonds have been around since the mid-1990s, not that they represented a sea change. What makes today different from then is the huge interest in this investment alternative, which is predicated, in large part, on the dismally low interest rates offered investors on more traditional investments like bonds.
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