A new report from AM Best states that total dedicated reinsurance capital jumped by 7% to USD 568 billion in 2023. The rating agency projects “an even larger increase” for 2024.
The report, released August 23 and entitled Dedicated Reinsurance Capital Thrives in Hard Market, estimates total dedicated reinsurance capital for year-end 2024 at between USD 620 billion and USD 625 billion.
Traditional reinsurance capital
The report adds that traditional reinsurance capital increased year over year by approximately USD 57 billion, or 14%, to USD 468 billion in 2023. “Aside from Berkshire Hathaway’s National Indemnity, the bulk of the growth was generated in Bermuda in 2023, owing in large part to operating returns reported by various Bermuda companies,” highlights AM Best.
Third-party capital
The rating agency observes that third-party reinsurance capital “saw a modest 3.7% increase in 2023 to USD 100 billion.” AM Best pointed out that it works with Guy Carpenter to estimate reinsurance industry capital. AM Best estimates traditional reinsurance capital while Guy Carpenter estimates third-party capital.
“The third-party reinsurance capital estimate for 2024 is between USD 105 billion and USD 110 billion; this is driven by healthy growth in catastrophe bonds and collateralized reinsurance,” states the report.
“Capital in the industry has expanded quickly, due to higher retained earnings and lower mark-to-market investment losses. Additionally, the absence of startup reinsurers has allowed traditional reinsurers to maintain their market shares without compensating with softening conditions. The reinsurance market seems well-positioned to absorb a reasonable level of losses and still grow capital,” stated Dan Hofmeister, associate director, AM Best.
Outlook
The AM Best report forecasts that the reinsurance market should be able to continue thriving throughout 2024. “With higher rates of returns on investments and relatively similar underwriting risk positions as 2023, the market should again be able to generate 10 plus returns on capital at year-end 2024.” The ratings agency cautions however that “returns could always be dampened by dividends, as they were in 2023, as well as a highly active hurricane season.”
IFRS 17
The report also states that the implementation of the new IFRS 17 accounting standards and “how that impacts capital levels is now front and centre for the industry.” AM Best does not expect the change in accounting methods to affect its view of capitalization and overall balance sheet strength.
