Reinsurance market will continue to thrive with dedicated capital poised to increase: AM Best

Total dedicated reinsurance capital went up by 7% in 2023 to $568 billion, and an even larger increase is projected for 2024 of up to $625 billion, according to a recent report by credit rating agency, AM Best.

The report revealed that traditional reinsurance capital increased 14% year over year, by approximately $57 billion, to $468 billion in 2023.

According to AM Best, aside from Berkshire Hathaway’s National Indemnity, the most substantial capital growth was generated in Bermuda, owing to robust operating returns reported by various Bermudian companies.

Regarding third-party reinsurance capital, the report revealed that this increased to $100 billion, or by 3.7% in 2023.

For 2024, AM Best is forecasting traditional reinsurance capital growth of 10% to $515 billion, while third-party capital is expected to land between $105 billion and $110 billion.

This puts estimated, total dedicated reinsurance capital for year-end 2024 at between $620 billion and $625 billion, and AM Best analysts expect that the reinsurance market will continue to thrive throughout 2024.

The report also noted that, despite the increases, since year-end 2018, traditional reinsurance capital has been less than 60% of the consolidated shareholders’ equity of the groups identifying as reinsurance writers.

Analysts highlighted that this figure dropped to 49% of shareholders’ equity in 2023, as reinsurers continued to expand into primary and specialty insurance lines.

AM Best works in conjunction with reinsurance broker Guy Carpenter to estimate the total amount of capital supporting the reinsurance industry.

Dan Hofmeister, associate director, AM Best, commented: “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.”

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