AM Best, a leading global rating agency, has projected that following the modest reinsurance capital recovery recorded in 2023, total reinsurance capital will return to $561 billion in 2024, representing about 2% lower than the prior high watermark of $570 billion set in 2021.
A news report from Reinsurance News, an industry-focused online medium, indicates that in its just published report on the risk underwriting industry, the rating firm stated: “The year 2023 proved to be a strong one for the reinsurance market, with much of the capital losses experienced in 2022 recouped by year-end.
“The January 2023 reinsurance renewals were 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”, it added.
Earlier this year, AM Best reportedly 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.
AM Best clarified: “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.
“Additionally, higher interest on fixed income and an equity market recovery bolstered underwriting returns, resulting in average returns on equity in the low- to mid-20% range for the year”, it added.
According to the news report, 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.
The rating agency attributed the development to higher nominal amounts in different insurance-linked securities, with catastrophe bond issuances reaching record-high levels in 2023.
As mentioned, in 2024, the rating agency expects total reinsurance capital to return to $561 billion, which is less than 2% below the prior high watermark of $570 billion 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.
The rating agency concluded: “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, it would dwarf the retained earnings growth among established players in 2023 and would thus be unlikely to soften the market”, it added.
