The Global Risks Alliance (GRA)
Reinsurers buy protection too, through retrocession, and draw capital from investors through catastrophe bonds, collateralised reinsurance, sidecars and industry loss warranties. This capital backs the tail of catastrophe risk and its availability shifts with losses and returns elsewhere. This page sets out how retrocession and alternative capital work, how they are measured, and who decides.
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Retrocession is reinsurance bought by reinsurers; alongside it, catastrophe bonds, collateralised reinsurance and sidecars bring capital-market investors into the tail of catastrophe risk. Collateral, triggers and capital availability shape capacity. Reinsurer boards, investors, sovereign issuers and supervisors hold the decisions.
The working screen behind this subject: its structure, terms and states. Names are placeholders and values illustrative.
Retrocession and capital · Cedent C-07 · Peril: tropical cyclone
| Retention | 0 | 70 | n/a | |
| Layer 1 | 76 | 61 | 8 | 1-in-14 |
| Layer 2 | 134 | 168 | 4 | 1-in-49 |
| Layer 3 | 397 | 188 | 1.2 | 1-in-157 |
Layered risk-transfer market dependencies. The dossier below sets out how the risk develops, what is measured, where the data come from, how it is modelled and who decides.
Insurance-linked securities let investors take catastrophe risk for a return uncorrelated with most assets. Fully collateralised structures remove counterparty risk.
After a large event, collateral is held until losses are known, which can take years. Trapped capital reduces capacity at the next renewal.
When reinsurers protect each other, losses can circulate within the market. Spirals concentrate losses and obscure who ultimately bears them.
Indemnity, industry index, parametric and modelled loss triggers differ in transparency and basis risk. Investors and cedants trade one against the other.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Catastrophe bond | A security whose principal is reduced if a defined catastrophe triggers a payout to the sponsor. |
| Collateralised reinsurance | Reinsurance fully backed by collateral held in trust, often provided by capital-market investors. |
| Trapped collateral | Collateral held after an event until losses are known, unavailable for new risk. |
Each indicator carries its unit, its cadence, the kind of source behind it and the evidence label a value would carry. No values are shown: a programme supplies them under its own authority.
| Indicator | Unit | Cadence | Source type | Label |
|---|---|---|---|---|
| Alternative reinsurance capital | currency | quarterly | Broker and industry reports | REPORTED |
| Catastrophe bond issuance | currency per year | annual | Transaction directories | REPORTED |
| Catastrophe bond outstanding by trigger type | currency by trigger | quarterly | Transaction directories | REPORTED |
| Catastrophe bond spread | basis points over risk-free rate | per issuance | Offering documents and market data | OBSERVED |
| Expected loss of issued bonds | percent per year | per issuance | Offering documents | MODELLED |
| Trapped collateral after events | currency | per event | Industry reports | ESTIMATED |
The topic as a computational graph: named sources feed the methods, an evidence review gates the outputs, and the decisions stay with the authorities that hold them.
Fig. 02Nodes carry their type, two metric rows and a state; connectors show what feeds what; dashed frames name the owners; the timeline is the cadence. Design of the pipeline, not a record of a run.
Named public datasets and institutional records, each with its licence class. Sources by agreement are used only under their terms and never republished.
| Source | What it gives | Licence class |
|---|---|---|
| Artemis deal directory | Catastrophe bond and ILS transactions | Proprietary, free to read under terms |
| Swiss Re Global Cat Bond Index | Total return index of catastrophe bonds | Proprietary, published summaries |
| Bermuda Stock Exchange ILS listings | Listed insurance-linked securities | Free to read, BSX terms |
| World Bank catastrophe bond programme documents | Sovereign catastrophe bonds issued through the World Bank | Free, World Bank terms |
| Aon and Gallagher Re capital reports | Reinsurance and alternative capital estimates | Proprietary, reports free to read |
Reinsurance and Catastrophe prepares evidence. The decisions below are taken by the authorities named, under their own rules, and never by the platform.
| Who decides | The question | Evidence this page serves |
|---|---|---|
| Reinsurer boards | How much retrocession and alternative capital to rely on | Capacity, price and counterparty evidence |
| ILS fund managers and institutional investors | Whether and how to allocate to catastrophe risk | Model output, trigger terms and past loss experience |
| Sovereign issuers and finance ministries | Whether to issue catastrophe bonds | Cost comparisons and basis risk evidence |
| Supervisors of special purpose insurers | Whether vehicles are fully funded and well governed | Collateral and governance records |
Retrocession lets reinsurers manage their peak exposures. Capital market instruments transfer catastrophe risk to investors, who receive returns in exchange for bearing losses if specified events occur. These instruments are typically fully collateralised, which reduces credit risk.
Layers create dependencies. In past market cycles, retrocession capacity tightened after large loss years, and some losses proved larger or slower to settle than expected, trapping collateral. Chains of transfer can also make it hard to see where risk ultimately sits, a concern known as spiral risk when the same exposure circulates among participants.
Capital from outside the industry has added capacity and diversification. Its behaviour after losses depends on investor appetite and the returns available elsewhere.
Studying how capacity flows through layers. Data on private transactions are limited.
Examining how losses develop over time after events. Each event differs.
Mapping chains of risk transfer. Counterparty information is confidential.
Examining how layers respond to extreme events, using extreme value theory.
This topic examines structure and dependencies. It does not discuss pricing, capacity or terms, and does not assess any instrument.
The current service level is R0: information and enquiries. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.