FRANKFURT/ZURICH The world's top reinsurers have shrugged off a growing incursion by pension funds into their business, saying the competition was narrowly focused and possibly of limited duration.
Munich Re, Swiss Re and Hannover Re all cited growing margin pressure, particularly for hurricane protection in the United States, from institutional investors who are pumping billions of dollars into the market of natural catastrophe securitization.
But the three reinsurers said they were not challenged by the arrival of these so-called alternative investors and were confident of achieving satisfactory prices and conditions when next year's contracts with their insurance company clients are renewed in coming weeks.
"We take the inflow of alternative capital seriously, but we are not alarmed by it," Swiss Re's chief underwriting officer Matthias Weber said on Monday.
At Munich Re, board member Torsten Jeworrek told a news conference at the annual meeting of the reinsurance industry in Monaco: "The general impact is manageable and one should not exaggerate.
Swiss Re said it expected prices for natural catastrophe cover to decrease in the short term but stabilize in 2014.
Munich Re share rose 3.4 percent by 0900 GMT, helped by Bank of America Merrill Lynch raising its recommendation on the stock to "buy" from "neutral," according to traders.
Swiss Re stock rose 2 percent and Hannover Re rose 1.8 percent.
Rock-bottom interest rates in developed country markets have helped spur the arrival of yield-hungry investors like pension funds into the reinsurance market.
Funds have been investing in "catastrophe bonds" that cover the risk of big damage claims, in direct competition with traditional reinsurers, who help shoulder insurance companies' risk in exchange for part of the profit.
Alternative investor capital for natural catastrophe risks is expected to rise to $75 billion dollars or 25 percent of the market for that risk in 2016, from $44 billion or a 17 percent market share last year, Munich Re said.
Catastrophe or "cat" bonds offer a high yield but investors risk losing some or all of their capital in the event of a costly hurricane or earthquake and their wherewithal has yet to be tested.
Institutional investor interest in the bonds might also wane once general interest rates begin to rise.
In the meantime, Munich, Swiss and Hannover stressed that diversification of their business regions and services would alleviate the impact of alternative investors in the natural catastrophe market.
All three companies are regular issuers of catastrophe bonds themselves for their own books, or those of clients, and are profiting from the advisory services they offer to insurance- linked security (ILS) investors.
The real pressure from alternative investors will be felt by companies without global reach, Swiss Re's Weber said. "Smaller, less diversified reinsurers ... will be under significant pressure," he said.
(Editing by David Holmes)