The total capital of reinsurers will recover to $561 billion in 2024
After the recovery of reinsurance capital in 2023, the agency AM Best noted that the total capital of international reinsurers will return to the level of $561 billion in 2024.
2023 turned out to be a good year for the reinsurance market, as a significant part of the losses received in 2022 were compensated by the end of the year. Reinsurers were able to achieve a significant increase in rates for property programs. Reinsurers continued to increase underwriting margins throughout the rest of the year. Even with a more orderly renewal of contracts in January 2024, market participants did not point to softening market conditions.
AM Best forecasts a 12.2% increase in traditional reinsurance capital in 2023 versus a 13.5% decline in 2022. However, once the North American hurricane season ends, reinsurers are poised to nearly double the projected increase.
Despite another year of insured losses exceeding $100 billion, reinsurers were generally able to avoid losses from many of the major property loss events.
In addition, higher fixed income interest rates and a recovering equity market boosted underwriting yields, resulting in an average return on equity for the year in the low to mid 20% range.
In early 2023, third-party capital also faced challenges similar to traditional capital, as several prominent players withdrew from their market capacity. However, the lost offer was fully compensated and even increased during the year.
That was helped by higher pars in various insurance-related securities, with catastrophe bond issuance reaching record highs in 2023, analysts said.
In 2024, the rating agency expects total reinsurance capital to return to $561 billion, down less than 2% from the previous high of $570 billion set in 2021. However, this is not expected to have a significant impact on market conditions, as participants maintain high rates and do not plan to relax insurance conditions.
The lack of interest from capital providers continues to increase the disparity between reinsurers’ available and used capital.
In addition, private investors are also not interested in placing capital for start-ups or newly created reinsurers. Although many senior management teams have announced their intentions to create new reinsurers, no significant business plans have been funded to date.
Even if funding is achieved, AM Best has made it clear that any seed capital that comes in will be less than the reinsurers’ retained earnings.