In response convergence of capital markets and risk financing programs based on capital market instruments or investments, is occurring. Gave insurer guaranteed reinsurance costs without giving up the potential to obtain further savings in the soft reinsurance market. Swiss Reinsurance Company entered into an agreement with a reinsurer involving a basis swap for U.S. windstorm damage. Many reinsurance companies in 1998 launched special capital market units. Probably a sign they expect non-traditional financial instruments to play a prominent role in future insurance and reinsurance transactions.
Investors regard insurance companies at little more than highly leveraged investment trusts.
This means insurers underwrite merely to generate cash for investment purposes. Shareholders look for return on their own money as well as that of the policyholder. Shareholder value in insurance comes from keeping the cost of the float below the cost of alternative leverage such as debt. Insurers do not need to make underwriting profits. However, once underwriting losses exceed what equivalent interest payments on debt would be, insurance as a business no longer pays.