Reinsurance capacity set to rise to $427bn

The amount of capital dedicated to writing reinsurance will increase to an estimated $427 billion in 2017, compared with $420 billion in 2016, according to AM Best.

The alternative reinsurance capacity lost due to the 2017 catastrophe events has been replaced as third-party capital continues to seek a larger share of the global market, the ratings agency notes in the briefing titled “Dedicated Reinsurance Capacity Remains Adequate”.

The amount of convergence capital, which includes industry loss warranties, collateralized reinsurance and catastrophe bonds, will grow year over year at a greater rate than overall capacity – to $82 billion from $75 billion. Despite the 2017 catastrophic events, catastrophe bond issuance continued to grow strongly through 2017, with more than 60 deals totalling slightly more than $12.5 billion, an increase of roughly $5.5 billion from the prior year.

Traditional reinsurers are continuing to adapt to the new landscape, and are increasingly managing risk share and aligning it with alternative capital for property and non-property classes of business.

There is a clear need for companies to form larger, global, well-diversified operations with broad underwriting capabilities to assess risk and to serve as transformers of risk to the capital markets, according to the briefing produced in conjunction with Guy Carpenter. AM Best believes the recently announced acquisition of Validus Holdings and its subsidiaries by American International Group (AIG) is a case in point of this inevitability, and expects further market consolidation, particularly among smaller players as acceptable returns become increasingly harder to achieve.

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