Dedicated Insurance Capital Sees Growth, With No Signs of Decline – AM Best

According to a new report from AM Best, dedicated insurance capital grew 7 percent to $568 billion in 2023, with further growth expected in 2024.

Traditional insurance capital grew by $57 billion, or 14%, year over year, reaching $468 billion in 2023. The increase was largely driven by strong profits reported by Bermudian companies, with the exception of Berkshire Hathaway’s national indemnity raising substantial capital.

AM Best projects continued growth in the reinsurance market through 2024, with year-end total committed insurance capital estimated between $620 billion and $625 billion for 2024. This projection includes an expected 10% increase in conventional capital.

Despite these increases, as of 2018, less than 60% of the consolidated shareholders’ equity of companies identified as reinsurance writers is traditional reinsurance capital, falling to 49% in 2023 as Reinsurers are rapidly expanding into primary and specialty lines of insurance.

According to the report, third-party reinsurance capital saw a modest growth of 3.7% in 2023, reaching $100 billion. AM Best has partnered with Guy Carpenter to estimate total capital supporting the reinsurance industry, with AM Best providing traditional capital estimators and Guy Carpenter third-party capital estimators.

Third-party reinsurance capital is estimated to be between $105 billion and $110 billion for 2024, driven by growth in catastrophe bonds and collateralized reinsurance.

Dan Hofmeister, associate director at AM Best, noted that capital has grown rapidly in the industry due to higher retained earnings and reduced losses on mark-to-market investments. He added that the absence of start-up reinsurers has allowed traditional reinsurers to maintain their market shares without having to adjust to easing conditions.

According to Hofmeister, the reinsurance market is well positioned to handle reasonable levels of losses and continue to grow capital.

The reinsurance market restructured during the January 2023 renewal after years of weak underwriting and operating returns that did not cover the cost of capital. Some reinsurers exited the property casualty space, while others adjusted their risk profiles by raising rates and increasing attachment points.

This turnaround led to operating returns at levels not seen in nearly three decades. During the first half of 2024, the property reinsurance market has stabilized, with a slight softening at the most connected points.

AM best predicts that the reinsurance market will continue to grow in 2024, with higher investment returns and similar underwriting risk positions in 2023. The market is expected to return more than 10 percent on capital by the end of 2024, although this could happen. Dividends and tempered by an active hurricane season.

However, the market appears to be able to absorb a reasonable level of underwriting losses while achieving capital growth.

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