With the majority of 2019 reinsurance renewals now complete, the impact of significant catastrophe activity has evolved from a year ago. Capital inflow levels and risk appetites are responding accordingly. Crucially, alternative capital dipped slightly in the first half of 2019 for the first time since 2012 to USD 92 billion as investors responded to evolving risk measures and loss experiences over the last 12 months.
Overall traditional dedicated reinsurance capital nevertheless recorded a moderate increase year-on-year of 1.5 percent to USD 346 billion during this period, as below-average catastrophe losses and macroeconomic factors, such as lower interest rates and higher bond valuations, effectively boosted the sector’s capital base. Additionally, the magnitude of “trapped” (and undeployable) capital has decreased since year-end, as more 2017/2018 losses have been paid or commuted. Overall, dedicated reinsurance capital is up approximately 0.5 percent over year-end 2018.
Our estimate of dedicated capital, done in conjunction with A.M. Best Company, is not a simple aggregation of capital from all companies that write reinsurance, since some of that capital is allocated to the insurance business or other outside interests. Instead, Guy Carpenter and A.M. Best estimate the amount of capital dedicated to writing reinsurance by using A.M. Best’s proprietary capital model, BCAR, and reviewing line-of-business allocations of reinsurers.