The reinsurance market’s capital structure is changing as investors grow more comfortable with alternative financing vehicles, according to Guy Carpenter.

“For the first time, there [have been] several instances of insurance-linked securities pricing delivering a more cost-effective risk transfer solution than traditional vehicles,” the company’s Global Head of Property Specialty Lara Mowery said.

“While traditional reinsurance has certain capital constraints for peak risk zones, the lower cost of capital afforded to third-party funds gives them the opportunity to charge less for peak US wind risks than traditional reinsurers.”

Investors are now happy breaking away from the traditional catastrophe bond market, she says.

“The impact has been dramatic this year, with robust catastrophe bond, sidecar and collateralised reinsurance activity triggering downward pressure on rates in the traditional market, in order to remain competitive.”

About $US10 billion ($10.94 billion) of new capital has entered the market via catastrophe bonds, sidecars and collateralised structures in the past 18 months, according to Guy Carpenter.

Investors seeking the higher yields and low correlations offered by the reinsurance market have driven this growth.

Alternative capital reinsurance markets are now valued at $US45 billion ($49.22 million), according to the company.

Meanwhile, Guy Carpenter predicts more hurricane activity this year.

“There is a general consensus that [this year] will see activity that meets or exceeds the 1995 to 2012 average of the current ‘active period’,” it said.

“[Last year] the destructive landfall of Superstorm Sandy along the northeast US coast served as a reminder of the loss potential of hurricanes in the Atlantic, even for areas where landfalls are comparatively rare.”