Swiss Re expects the demand for natural catastrophe reinsurance to double in high-growth markets and to rise by around 50 percent in mature markets by 2020, the reinsurer said in a statement.

Alternative capital is focusing on peak exposures in the U.S. nat cat markets where entry barriers are low and margins high, the statement said, adding that Swiss Re estimates that prices for nat cat covers will stabilize in 2014 after a decline this year.

The statement noted that 70 percent of the alternative capital entering the reinsurance market is focused on U.S. natural catastrophe risks while other business lines are less affected.

In the United States, alternative capital is comparable to what it was immediately after hurricanes Katrina, Rita and Wilma. Alternative capital still needs to be tested in case of increasing interest rates or large losses from natural disasters, the statement said.

These changing market dynamics are expected to be most challenging to less diversified reinsurers.

Matthias Weber, Group CUO, Swiss Re
Matthias Weber, Group CUO, Swiss Re

“We take the inflow of alternative capital seriously, but we are not alarmed by it,” said Swiss Re’s Group Chief Underwriting Officer Matthias Weber, echoing comments made by rival Munich Re at a press briefing on Sunday.

“Swiss Re can take advantage of its capital markets expertise and—at the same time—compete successfully as a full service provider,” Weber added.

“Smaller, less diversified reinsurers, however, will be under significant pressure,” he said in the statement.

Source: Swiss Re