{"id":881,"date":"2025-10-22T13:40:46","date_gmt":"2025-10-22T13:40:46","guid":{"rendered":"http:\/\/fictionuncovered.com\/?p=881"},"modified":"2025-10-23T15:45:17","modified_gmt":"2025-10-23T15:45:17","slug":"increasing-diversity-of-risk-transfer-and-capital-sources-is-credit-positive-kbra","status":"publish","type":"post","link":"http:\/\/fictionuncovered.com\/index.php\/2025\/10\/22\/increasing-diversity-of-risk-transfer-and-capital-sources-is-credit-positive-kbra\/","title":{"rendered":"Increasing diversity of risk transfer and capital sources is credit positive: KBRA"},"content":{"rendered":"

This content is copyright to www.artemis.bm<\/a> and should not appear anywhere else, or an infringement has occurred.<\/p>\n

The increasing diversity of risk transfer instruments and reinsurance capital sources, including insurance-linked securities (ILS), is a credit positive for the U.S. property and casualty (P&C) insurance sector that faces an evolving risk landscape and rising secondary peril losses, according to rating agency KBRA.
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\n\"kbra-logo\"Insurance markets faced by severe\u00a0 and more frequent weather events have seen the most dramatic changes in the risk sharing dynamic between insurers and reinsurers, KBRA explains.<\/p>\n

While major hurricanes have often been deemed the most significant threat to insurer profitability, rising industry losses from secondary perils such as severe convective storms (SCS) are now high on the agenda.<\/p>\n

This comes against the backdrop of the changes KBRA refers to, which have seen P&C insurers holding a larger proportion of losses on a net basis in recent years, since attachment points for catastrophe covers changed in the hard reinsurance market environment.<\/p>\n

While the reinsurance market is now seemingly entering a softening phase again, KBRA explains that \u201cthe structural reinsurance changes implemented in 2023 remain in place.\u201d<\/p>\n

However, KBRA also notes that underwriting changes enacted in the primary P&C insurance market in the United States, mean insurers have been able to improve their combined ratios even with less reinsurance support on weather-related losses.<\/p>\n

The reduction in availability of aggregate reinsurance covers has been another factor, as reinsurers shied away from the broader terms that were seen in the last soft market and reduced capacity deployed to support frequency loss covers.<\/p>\n

But again, with reinsurance now having softened somewhat, well-structured aggregate protection is becoming more available again, albeit at much narrower terms and higher pricing than was seen a decade ago.<\/p>\n

While insurers used to manage their weather-related losses through reinsurance, they are now having to look at a wider range of risk transfer solutions and capital sources to support their protection needs.<\/p>\n

KBRA notes that, \u201calternative capital management solutions have continued to expand, including parametric coverage and nontraditional reinsurance capacity such as insurance-linked securities (ILS).\u201d<\/p>\n

The rating agency further explained, \u201cOver the past 10 to 15 years, there has been strong growth in ILS such as catastrophe bonds, sidecars, and collateralized reinsurance. These structures appeal to a wide range of capital-market investors, including pension and hedge funds, and now provide approximately 15% of total reinsurance capacity. From a credit perspective, the increasing diversity of risk transfer\u2014a blend of traditional reinsurance, catastrophe bonds, aggregate covers, and, where appropriate, well-capitalized captives\u2014is credit positive for the industry, as it reduces counterparty concentration and provides access to multiple sources of claims-paying ability.\u201d<\/p>\n

Parametric risk transfer solutions are seeing increased adoption, with these able to \u201cfill gaps in coverage and provide quicker liquidity compared with indemnity-based coverage,\u201d KBRA said.<\/p>\n

Basis risk is still seen as a concern and possibly something that holds back parametric adoption though.<\/p>\n

On the ILS and cat bond side, while this segment has grown particularly strongly, in provision of higher-layer reinsurance capacity to the US P&C insurance market, KBRA does caution that while yields remain attractive at this time \u201cnontraditional reinsurance capital providers may shy away from the market if a significant weather event were to occur or if other asset classes present a better investment opportunity.\u201d<\/p>\n

Prudent use of risk transfer is one of KBRA\u2019s measures of credit quality when it assesses re\/insurers and the rating agency notes that for catastrophe-exposed insurers downside risk is typically limited to isolated cases, while there is upside potential if weather activity remains more subdued.<\/p>\n

In the current market environment, re\/insurers would be well-advised to look at shoring up their risk transfer protection, taking advantage of softer reinsurance conditions, abundant alternative and ILS capital, as well as innovative structures including parametrics.<\/p>\n

Increasing diversity of risk transfer and capital sources is credit positive: KBRA<\/a> was published by: www.Artemis.bm<\/a>
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This content is copyright to www.artemis.bm and should not appear anywhere else, or an infringement has occurred. The increasing diversity of risk transfer instruments and reinsurance capital sources, including insurance-linked securities (ILS), is a credit positive for the U.S. property and casualty (P&C) insurance sector that faces an evolving risk landscape and rising secondary peril […]<\/p>\n","protected":false},"author":1,"featured_media":883,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[17],"tags":[],"_links":{"self":[{"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/posts\/881"}],"collection":[{"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/comments?post=881"}],"version-history":[{"count":2,"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/posts\/881\/revisions"}],"predecessor-version":[{"id":884,"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/posts\/881\/revisions\/884"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/media\/883"}],"wp:attachment":[{"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/media?parent=881"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/categories?post=881"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/fictionuncovered.com\/index.php\/wp-json\/wp\/v2\/tags?post=881"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}