Global reinsurance results were better than expected last year, after significant losses in 2022, according to a new report from AM Best.

Early in 2023, the ratings agency projected an increase in traditional reinsurance capital of 12.2 per cent for the year, compared with the 13.5 per cent decline the previous year. However, at the end of hurricane season, reinsurers were on pace to nearly double the projected increase. This was attributed to strong technical results, unrealised capital gains and higher investment rates.

Now AM Best is pointing to an even better 2024.

“We expect total reinsurance capital to return to $561 billion, which is less than 2 per cent below the prior high watermark of $570 billion set in 2021,” AM Best stated.

The ratings agency did not expect this to have a material impact on market conditions because participants were holding their positions on rate and terms.

“The lack of interest from capital providers continues to reinforce the disparity between available and deployed capital,” AM Best said.

“Furthermore, private equity investors also appear to lack interest in deploying capital to start-ups or newly formed reinsurers. Although multiple high-profile management teams have announced their intentions to launch new reinsurers, no material business plans have been funded at this point.

“Even if funding is achieved, it would be insignificant compared with the retained earnings growth among established players in 2023 and would thus be unlikely to soften the market.”

AM Best said that the dynamic between available and deployed capital remained, with some reinsurers yet to determine their capital strategies, while others had chosen to pay special dividends out of their regulated balance sheets. Mentioned in particular was Berkshire Hathaway-owned National Indemnity’s special dividend of around $83 billion in the third quarter of 2023.

The report also revealed that third party capital had experienced issues similar to traditional capital at the onset of 2023, as a few established players withdrew their market capacity.

“However, the lost supply was fully recouped and even expanded through the year,” AM Best said. “This was aided by higher nominal amounts in different insurance-linked securities.

“CAT bond issuances reached record-high levels in 2023, further justifying a revision of the original estimate of $99 billion to $100 billion.”