Reinsurers’ traditional business model is under pressure from the growing influence of alternative market capacity, according to reinsurance broker Guy Carpenter.

They are being forced to compete against a lower-cost-of-capital model, but most have responded by “leveraging their incumbent status on reinsurance programs, offering similar or better terms and similar or reduced pricing”.

Traditional players are stressing their ability to provide reinstatements and creating their own capital market divisions to attract third-party capital “whether in the form of fund management, managed accounts or sidecars”.

Despite a drop in insurance-linked securities pricing over the past year, investor demand is robust, Guy Carpenter says.

“If insurers do elect to continue accessing capital markets’ capacity, they may be kindly rewarded through enhanced terms, conditions and pricing.

“As the catastrophe bond market continues to mature, more new sponsors are looking into the alternative market space for meaningful capacity and the expectation is this trend is likely to continue through [the year].”