Most US insurance companies’ CFOs do not use alternative forms of capital for reinsurance but are open to doing so in future, according to a survey by consultants Towers Watson.

“As the market for insurance-linked securities and other alternative forms of capital has experienced explosive growth, insurance company CFOs have started to look more favourably upon these options to complement their companies’ traditional reinsurance arrangements,” the report says.

Nearly all respondents (97%) to the North American Property and Casualty Insurance CFO Survey say they use traditional reinsurance.

About 59% use collateralised reinsurance or are likely to use it, with 27% favouring insurance-linked securities such as catastrophe bonds and 27% hedge fund-owned reinsurers.

Although 88% of respondents recognise the lower cost of alternative capital, two-thirds note disadvantages such as complexity of contracts or deal structure, ambiguity over contract triggers and frictional and transaction costs.

Most CFOs believe the US reinsurance market is softer than the primary market – a trend they attribute to the influx of alternative reinsurance capital.

Towers Watson says 90% of respondents have seen or expect to see falling prices driven by alternative forms of reinsurance, “and we have seen a significant acceleration of these vehicles, even since the opening of our survey in September last year”.

Reinsurers that can operate in either the alternative or traditional reinsurance spectrums – or both – will be the ultimate winners, it says.