A new commentary note from AM Best, Strong Recovery in Total Reinsurance Capital Countered by Surplus Distributions, says reinsurance capital generally recovered in 2023, recouping the losses experienced in 2022.
They say 2023 was a strong year for the reinsurance market. January 2023 reinsurance renewals, they add, “were broadly categorized as disorderly, which was final confirmation of the hard reinsurance market,” AM Best researchers write.
Reinsurers during the year were able to achieve higher attachment points in their property programs which, aided by higher rates, improved underwriting margins. “Throughout the remainder of the year, reinsurers held strong as a group and continued to enhance underwriting margins. Even with much more orderly renewals in January 2024, market participants have not indicated any softening in market conditions.”
They add that with still high discount rates and significantly improved operating results, reinsurers need to determine whether to release capital or double down in the hard market. AM Best says it expects total reinsurance capital to return to USD $561-billion, two per cent below the prior high-water mark of $570-billion set in 2021. (All figures in USD.)
“This is not expected to have a material impact on market conditions, as participants are holding their positions on rate and terms. The lack of interest from capital providers continues to reinforce the disparity between available and deployed capital,” they add. “Furthermore, private equity investors also appear to lack interest in deploying capital to start ups or newly formed reinsurers.”
The report goes on to say that multiple teams have announced plans to launch new reinsurers, but no material business plans have been funded at this point. “Even if funding is achieved, it would be insignificant compared with the retained earnings growth among established players in 2023 and would thus be unlikely to soften the market.”
