A new briefing from AM Best claims that the alternative reinsurance capacity lost due to the 2017 catastrophe events has been replaced as third-party capital continues to seek a larger share of the global market.
Best’s Briefing, “Dedicated Reinsurance Capacity Remains Adequate,” was created in conjunction with Guy Carpenter. It estimates that the amount of capital dedicated to writing reinsurance will increase slightly to an estimated $427 billion in 2017, compared with $420 billion in 2016.
According to the briefing the amount of convergence capital, which includes industry loss warranties, collateralised reinsurance and catastrophe bonds, will grow year over year at a greater rate than overall capacity – to $82 billion from $75 billion. Despite the 2017 catastrophic events, catastrophe bond issuance continued to grow strongly through 2017, with more than 60 deals totaling slightly more than $12.5 billion, an increase of roughly $5.5 billion from the prior year.
The rating agency said that traditional reinsurers are continuing to adapt to the new landscape, and are increasingly managing risk share and aligning it with alternative capital for property and non-property classes of business. The briefing notes a clear need for companies to form larger, global, well-diversified operations with broad underwriting capabilities to assess risk and to serve as transformers of risk to the capital markets.
AM Best added that the recently announced acquisition of Validus Holdings and its subsidiaries by American International Group is a case in point of this inevitability, and expects further market consolidation, particularly among smaller players as acceptable returns become increasingly harder to achieve.
AM Best, briefing, reinsurance, capacity, 2017, 2016, alternative, catastrophes, convergence, Guy Carpenter, warranties