Best’s Briefing: Catastrophes Do Little to Stem Supply of Dedicated Global Reinsurance Capacity

OLDWICK, N.J.--(BUSINESS WIRE)-- 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, according to a new A.M. Best briefing. A.M. Best, working in conjunction with Guy Carpenter, has estimated the amount of capital dedicated to writing reinsurance will increase slightly to an estimated USD 427 billion in 2017, compared with USD 420 billion in 2016.

The Best’s Briefing, “Dedicated Reinsurance Capacity Remains Adequate,” estimates that the amount of convergence capital, which includes industry loss warranties, collateralized reinsurance and catastrophe bonds, will grow year over year at a greater rate than overall capacity – to USD 82 billion from USD 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 USD 12.5 billion, an increase of roughly USD 5.5 billion from the prior year.

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. A.M. Best believes the recently announced acquisition of Validus Holdings, Ltd. and its subsidiaries by American International Group, Inc. 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.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=270246.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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Source: A.M. Best