Swiss Re Capital Markets and investment banks like Goldman Sachs have been at the forefront of the securitisation market since it began, competing aggressively to lead manage deals. For many years their understanding of the convergence between insurance and the capital markets has been unparalleled.
But all that is set to change, according to Mark Hvidsten, chief executive officer of global analytics and solutions at Willis Re. He says reinsurance brokers are snapping at the heels of these two market leaders, keen to take a bigger slice of the action.
"Brokers have not been a factor in placing cat bonds over the past few years. It has been two years since any reinsurance broker has placed a cat bond," says Hvidsten. "We and others have always been in a position to give clients advice on the use and application of cat bonds, but now we are involved in the execution as well."
Chris McGee, director of MMC Securities and leader of Guy Carpenter's investment banking practice, agrees. He says until recently, clients tended to view their brokers as advisers on securitisation deals, but are rapidly discovering they have the capability to execute the transactions as well.
"We have a tremendous amount of value to add," says McGee. "There is no business that is as deeply staffed and resourced to focus on cat risk transfer and the transfer of other risks via insurance-linked securities than a company like ours."
McGee adds that brokers are a more natural partner for potential cedants than investment banks because of their better understanding of the insurance and reinsurance markets.
"We have deep, deep analytical capabilities and intimate knowledge of the models and our clients' portfolios. I don't believe that the investment banks understand the strengths and weaknesses of the data and the models to the level of detail that we do," he says.
But far from competing with investment banks, some brokers are joining forces with them. On April 20, reinsurance broker Benfield teamed up with investment bank Merrill Lynch to offer insurers and reinsurers catastrophe bonds as an alternative to traditional reinsurance for their peak exposures.
Benfield gave the recent interest in cat bonds, spurred by revisions to cat models and increasing rating agency requirements, as the reason for the tie-up.