Global reinsurance market experienced a significant recovery in capital

In 2023, the global reinsurance market experienced a significant recovery in capital, according to AM Best. This recovery was mainly driven by strong technical results, unrealized capital gains, and higher reinvestment rates.

As a result, total reinsurance capital is projected to return to $561 bn in 2024, which is just less than 2% below the record high of $570 bn set in 2021.

However, this is not anticipated to have a material impact on market conditions, as participants are holding their positions on rate and terms.

AM Best’s observation reveals that the reinsurance market overcame the capital losses it had encountered in 2022. The 2023 reinsurance renewals began with higher pricing and stricter terms, which contributed positively to the recovery.

Despite more orderly renewals expected in January 2024, there has been no indication of softening market conditions.

One of the key factors that aided this recovery was the ability of reinsurers to achieve substantial increases in attachment points on property programs in 2023, along with higher rates that significantly improved underwriting margins.

This trend continued throughout the year, strengthening the underwriting results.

Global reinsurance market experienced a significant recovery in capital

AM Best continued, broadly categorized as “disorderly,” which was final confirmation of the hard reinsurance market. Reinsurers were able to achieve significant increases to attachment points on property programs, which, along with higher rates, significantly improved underwriting margins.

Throughout the remainder of the year, reinsurers held strong as a group and continued to enhance underwriting margins. Even with the much more orderly renewals in January 2024, market participants have not indicated any softening in market conditions.

AM Best projected an increase in traditional reinsurance capital of 12.2% for 2023, versus the 13.5% decline in 2022.

However, as the North American hurricane season ended, the rating agency said that reinsurers were on pace to nearly double the projected increase.

Despite another year with over $100 billion in insured losses, reinsurers were generally able to avoid losses stemming from many of the major property loss events.

Despite another year with over $100 billion in insured losse

Additionally, the reinsurance market was bolstered by favorable outcomes in the fixed income and equity markets, which further contributed to the improved financial status of reinsurers. Interestingly, reinsurers managed to avoid significant losses from major property loss events and reported average returns on equity in the low- to mid-20% range for the year.

The recovery was also supported by the third-party capital market. Despite initial challenges, the market managed to recuperate and even expand throughout 2023.

This was evidenced by the increase in catastrophe bond issuances, which reached record-high levels.

Overall, the reinsurance market’s resilience in 2023 and its expected performance in 2024 demonstrate its ability to navigate through complex market dynamics and significant loss events, underscoring its crucial role in the global insurance industry.

Third-party capital also experienced issues similar to traditional capital at the onset of 2023, as a few established players withdrew their market capacity.

However, the lost supply was fully recouped and even expanded throughout the year.

According to AM Best, this was aided by higher nominal amounts in different insurance-linked securities, with catastrophe bond issuances reaching record-high levels in 2023.

The lack of interest from capital providers continues to reinforce the disparity between available and deployed capital.

Furthermore, private equity investors also appear to lack interest in deploying capital to start-ups or newly formed reinsurers. Although multiple high-profile management teams have announced their intentions to launch new reinsurers, no material business plans have been funded at this point.

Even if funding is achieved, AM Best made it clear that any startup capital that comes in would be dwarfed by reinsurers retained earnings.

Yana Keller   by Yana Keller