But even without rising reinsurance prices, more securitization will take place because it offers a large source of diversified capacity, often with superior credit quality. Securitized products tend to work best where there are large capacity requirements and where the risks involved are simple and straightforward. This combination of attributes lowers the cost of issuance while being attractive to investors. As a general rule, reinsurance is much better than the capital markets for messy, complicated risks and for risks where capacity needs are small. It is very hard to see the capital markets ever replacing reinsurance.
Reinsurance is too flexible, too tried and true, and too efficient a tool.
We do believe, however, that the capital markets will supplement and complement the reinsurance capacity that is currently available to ceding companies and ultimately to the original insureds. In this way, securitization should play an important role in making insurance cover cheaper and more broadly available to consumers and corporations alike, particularly for highly concentrated and potentially devastating risks like earthquakes and hurricanes. This article has been prepared for informational purposes only and is not an offer to sell or a solicitation to buy any of the securities described herein. The Atlas Re notes have not been registered under the U.S. or any foreign securities laws and may not be offered or sold in the United States absent registration or an exemption from registration. Inc. All rights reserved.