Bermuda’s reinsurance sector a driver of dedicated capital jump
Bermuda’s reinsurance sector was a main driver as total dedicated reinsurance capital in 2023 jumped by 7 per cent to $568 billion, with an even larger increase projected for 2024, a report by AM Best has revealed.
The Best’s Market Segment Report, Dedicated Reinsurance Capital Thrives in Hard Market, is part of the rating agency’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo.
According to the report, traditional reinsurance capital increased year-over-year by approximately $57 billion, or 14 per cent, to $468 billion in 2023.
AM Best said: “Aside from Berkshire Hathaway’s National Indemnity, the bulk of the capital growth was generated in Bermuda in 2023, owing in large part to robust operating returns reported by various Bermudian companies.
“Additionally, RenaissanceRe and Everest Group both completed new capital issuances in 2023 to fund growth opportunities.
“AM Best’s Bermuda Reinsurers Composite reported shareholders equity growth of 33.7 per cent, on a 23 per cent average return on equity in 2023.
“Although Bermudian reinsurers on average outperformed all other segments of the global reinsurance market, the market generally reported favourable trends in nearly every region.
“US and Bermuda-domiciled companies, however, have not historically experienced the same investor pressure to return excess capital as their European counterparts have.
“If Bermudian reinsurers continue to perform at this pace, the gap in capital levels may narrow.”
The agency said it expected that the reinsurance market would continue to thrive throughout 2024; total dedicated reinsurance capital for year-end 2024 is estimated at between $620 billion and $625 billion.
The estimate factors in a 10 per cent rise in traditional capital.
Despite the increases, since year-end 2018, traditional reinsurance capital has been less than 60 per cent of the consolidated shareholders’ equity of the groups identifying as reinsurance writers.
This figure dropped to 49 per cent of shareholders’ equity in 2023, as reinsurers continued to expand into primary and specialty insurance lines.
The report said third-party reinsurance capital saw a modest 3.7 per cent increase in 2023 to $100 billion.
AM Best said it works in conjunction with Guy Carpenter to estimate the total amount of capital supporting the reinsurance industry. AM Best estimates traditional reinsurance capital; Guy Carpenter estimates third-party capital.
The third-party reinsurance capital estimate for 2024 is between $105 billion and $110 billion, driven by healthy growth in catastrophe bonds and collateralised reinsurance.
Dan Hofmeister, associate director, AM Best, said: “Capital in the industry has expanded quickly, due to higher retained earnings and lower mark-to-market investment losses.
“Additionally, the absence of start-up 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.”
• To read the full report, see Related Media
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