March 27th, 2018

Reinsurance Market Assessment: What the Numbers Reveal about the Current Industry Status. Chapter 1

Posted at 1:00 AM ET

After several years of light catastrophe activity, particularly in the United States where capital deployment covering catastrophe exposures was heavily impacted by convergence capital, the events of 2017 provided a framework to evaluate how evolving market dynamics over the last few years held up to the real test of losses.

A review of data and behavior from 2017 revealed supply/demand dynamics remained favorable to buyers of reinsurance. Markets maintained reasonable levels of capital and profitability overall, even though some individual lines of business have underperformed in recent years. The actions of this evolving market can now be evaluated with at least some level of real-world experience and an assessment of market response has a direct bearing on what companies can plan for and expect going forward.

Chapter I: How will industry capital levels be impacted by over USD 100 billion of loss? Will convergence capital remain engaged or pull back amidst losses and trapped capital?

  • Capital dedicated to the reinsurance sector continued its overall growth in 2017 despite losses.
  • Convergence capital is estimated at USD 82 billion.
  • Traditional capital dedicated to writing reinsurance remained flat; convergence capital grew 9 percent after replacement of loss and trapped capital.
  • Estimated capital dedicated to writing reinsurance at year-end 2017 is approximately USD 427 billion, up 2 percent from year-end 2016.
  • While reinsurers deployed capacity at January 1 with greater sensitivity to pricing and terms, there was no indication from traditional or alternative markets that they were unwilling to continue fully supporting the space.

Guy Carpenter and A.M. Best Company’s estimate of capital dedicated to the reinsurance sector from traditional sources was calculated using A.M. Best’s proprietary capital model (BCAR) results as well as line of business allocations. The convergence capital total was derived from dedicated insurance-linked securities (ILS) managers, (re)insurance-sponsored managers and direct generalist investors. Convergence capital is deployed in industry loss warranties, catastrophe bonds, side-car capacity and collateralized reinsurance.

Link to Chapter 2, Part I >>

Link to Chapter 2, Part II >>

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