The 2023 Reinsurer Class: The Class That Never Was. That is the label for the phenomenon, and for a new AM Best report highlighting that despite reinsurers’ returns reaching a three-decade high, no new class of companies have yet materialised in the segment, defying past trends.

A large-scale loss in past years has precipitated the shift, by depleting existing capital and forcing reinsurance prices higher, typically whetting the appetite of investors in the process, Bestwire observed in a recent report.

Groups of companies were created in waves, predominantly in Bermuda, as investment capital took advantage of hard-market conditions to form new reinsurers, further developing the Bermuda market and a de facto home for almost all new reinsurance capital.

“A class of start-up reinsurers usually quickly forms to capitalise on the interruption in the reinsurance demand-supply equilibrium,” said Dan Hofmeister, associate director, AM Best. “Many of these new reinsurer formations merge or are acquired as the market cycle returns to the soft phase of the cycle.”

In addition to September 11, hurricanes Andrew (1992), Ike (2008) and Katrina, Rita, and Wilma in 2005 serve as the more notable examples of catastrophe events that led to a class of reinsurers entering the segment.

The report said elevated property catastrophe activity since 2017 — after an extended period of relatively benign years — coupled with a substantial increase in secondary perils, caused reinsurance pricing and reinsurance contract terms and conditions to improve notably, continuing, albeit at a decelerating rate, through the June 1 renewal.

This hard reinsurance market is different from many of the prior hard markets in that it was not caused by a single, large loss, but by the accumulation of a series of property catastrophe events, which led to significant underwriting losses and resulted in earnings events for almost all reinsurers.

“AM Best has issued a number of preliminary credit assessments on business plans from high profile management teams, which have had similar difficulties in fundraising,” said Carlos Wong-Fupuy, senior director, AM Best.

“Many of them note that large, passive capital investors, such as sovereign wealth funds, endowments and pension funds, still have healthy levels of interest in the industry.”

According to the report, private equity-venture capital investors do not appear to be interested in supporting start-up non-life reinsurers.

Primary drivers behind this may also include competitive conditions in the reinsurance market and the availability of insurance-linked securities that may have more appeal in a hard reinsurance market given their concentrated nature.