London and Bermuda attract capital as insurance market conditions improve: AM Best

Expectations of a broad market hardening and the lack of other opportunities for investors have attracted significant capital raising activity in both Bermuda and London, according to AM Best.

In a special report, titled 'London and Bermuda Attract Capital as Insurance Market Conditions Improve', AM Best revealed that private equity, industry capital and public placements all contributed to the capital inflow in 2020, supporting the balance sheets of existing players, alongside some material scale-ups and a number of true startups.

The report, however, suggested that the capital inflow partly reflected the absence of other opportunities for investors.

"The low interest-rate environment has forced investors – particularly institutional investors – to look further afield for yield opportunities," it explained. "The risk and reward calculation posed by the insurance industry in a hardening market may look more attractive to existing and new investors."

Catherine Thomas, senior director of analytics at AM Best, said: "This year, rates in a number of lines of business continue to harden as the market responds with increased underwriting discipline to adverse claims experience driven by social inflation in the United States, COVID-19-related losses, and in recent years, elevated catastrophe experience."

The report noted that it is not yet clear how the economic fallout from the COVID-19 pandemic will impact demand for insurance.

Although pandemic-related volatility may constrain re/insurers’ merger and acquisition activity in the short term, AM Best expects consolidation pressures to likely remain longer term.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.