Collateralized retrocession
Protection for reinsurers funded by investor capital and secured by full collateral.
On January 1, 2019, after Irma and Jebi, part of the funds' collateral was trapped and retro renewed up, tighter than the reinsurance it protects. Collateralized retrocession is the cover a reinsurer buys for its own portfolio from vehicles funded by investors, whose obligation is fully secured by deposited assets. It has largely replaced traditional retro on high layers, and the London market paid dearly to learn why. When reinsurers retrocede to one another, the same loss passes through the system several times, as in the LMX spiral after Piper Alpha in 1988, and nobody knows their net exposure anymore. A carrier that posts its entire obligation breaks the chain: it has nothing to retrocede. That solidity is paid for in concentration. The market rests on a few funds, and when their capital pulls back after a costly season, retro dries up first, then the price increase works down to every direct cover.
After a season with two major events, collateralized retrocession capacity available at the January 2026 renewal falls by roughly 25 percent, part of the collateral remaining trapped on prior years. Retrocession prices rise 35 to 50 percent, and reinsurers, forced to retain more net, pass that increase into their own layers at the April and July renewals.
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