Insurance Risk as an Alternative Asset Class

Status quo

• policy holders buy from retail brokers

• retail brokers buy from 1) carriers 2) MGAs 3) wholesalers

  • only carriers underwrite

• MGAs do not underwrite and need a reinsurer for the 1) balance sheet 2) license. They pitch they can better underwrite

  • Usually they can get from reinsurance firms like SwissRe or MunichRe. But there are only a handful in the entire world and capacity is severely constrained and backlogged

  • Fronting carriers then existed to also provide this license and balance sheet

    • they still direct risk to the reinsurers

    • effectively they cushion between all the MGAs and the reinsurance firms

    • Fronting carriers can be constrained too because they are ultimately still dependent on reinsurance firms

Problem: reinsurance capacity is constrained.

Demand: investors are increasingly interested in alternative asset classes and diversifying their investments

• ILS funds also moving away from nat cat given how poorly data there has been

• Everyone else doesn't understand insurance risk but wants to get a piece of it if the returns are good.

Solution: democratize and sell this risk to investors!

• helps MGAs get risk placed

• fronting carriers + reinsurance firms offload their capacity

• provide a certain return to ILS funds

Questions and risks

• takes time to see if promised returns materialized

• ability for the firm running this marketplace of risk to actually understand what is good risk and bad risk

• ability to get ILS funds involved and investors

• in an economic downturn, investors move away from new alternative asset classes and stick with more traditional methods