Global reinsurance capital has fallen back from its $575 billion peak, recorded in 2014, and is now estimated to be 2 per cent lower at $565 billion.

The reason for the $10 billion drop is unrealised investment losses, together with adverse foreign exchange movement, according to the latest report from Aon Benfield.

During the past 12 months alternative capital has continued to grow, albeit at the slowest rate since 2010, and hit $69 billion.

That was only an 8 per cent rise, but Aon Benfield maintains its prediction that alternative capital will jump to between $120 billion and $150 billion by 2018.

“Over-capitalisation” is often cited as one of the reasons for the soft reinsurance market.

The figures in the “Reinsurance Market Outlook” report are based on data up to and including the third quarter of last year.

The reinsurance intermediary and capital advisory firm has a positive outlook for reinsurance buyers at April 1 renewals. “Insurers are likely to find improvements in pricing terms and conditions that are similar to what we achieved for clients at January 1,” the company stated in its report.

During last year there were discernible trends within the alternative capital space, with sidecar capacity increasing the most, up 30 per cent, and a smaller increase in insurance loss warranties. There was a small decrease in catastrophe bond capital.

Growth opportunities seen in 2015 included more insurance and reinsurance transactions focused on US residential mortgage default risk and the increase in demand for cyber risk insurance coverage.

There was also a growing privatisation of public risk, as shown by Florida Citizens Property Insurance Corporation having now placed $3.9 billion of risk transfer into the private market, compared to $575 million in 2011. Last year, the Florida Hurricane Catastrophe Fund secured reinsurance capacity from the private market for the first time.

Aon Benfield expects to see more non-insurance corporate sponsors in the catastrophe bond market. US railroad company Amtrak was an example of this during 2015.

Every major region of the world sustained below average annual insured losses last year, and for a second consecutive year there were no major catastrophes that registered insured losses above $5 billion. The costliest insured event for the US was a February winter storm that resulted in $2.1 billion of insured losses, making it “the lowest ‘most expensive’ annual individual insured loss event sine 2000”, the report noted.

Insured global catastrophe losses were at their lowest level since 2009, with a tentative figure of $32 billion, compared to the 10-year average of $61 billion. The US continues its record-setting streak of consecutive hurricane seasons without a major hurricane landfall. The last major hurricane to strike the US was Wilma in October 2005.

Global flood losses were identified as a major growth opportunity due to the low insured-to-economic loss ratio.

Looking ahead, Aon Benfield said leading reinsurers had invested heavily in skills and processes to allow more of clients’ risks to be managed in the reinsurance market.

“These commitments will need to continue and broaden beyond the early movers to allow us to continue to meet growing demand in six areas.”

Those areas are US mortgage credit risk; life and annuity risk; government risk depopulation and risk transfer; regulatory and rating agency capital model adoptions and enhancements; tactical reinsurance transactions; and cyber and corporate giga-liability risk programmes.

“Differentiators for reinsurers going forward are increasingly apparent. Underwriting expertise, breadth and depth of coverage, and responsible servicing translate to strong broker and client relationships,” Aon Benfield stated.

The company further noted that many reinsurers “have put even further focus on client intimacy, enhanced risk analytics, broader product and distribution capabilities, and capital market relationships while at the same time simplifying and streamlining their businesses wherever possible to maximise operating efficiencies”.