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According to ratings agency AM Best, underlying insurance-linked securities (ILS) capital expanded throughout 2024 due to a large quantity of investors reinvesting their earnings across the market, which further expanded deployable ILS capacity.
AM Best and reinsurance broker Guy Carpenter previously revealed that dedicated reinsurance capital grew by 6.9% over the course of 2024, however, alternative capital that largely represents the capacity deployed by ILS fund managers and through other ILS structures expanded slightly faster by 7% to reach $107 billion for year-end 2024.
The reinsurance broker and the rating agency had previously made a projection that alternative and ILS capital in the reinsurance market would end 2024 sitting between $105 billion and $110 billion.
“Since the hardening of the property reinsurance market in 2022, the ILS (insurance-linked securities) market has continued to evolve into a more significant part of the reinsurance market,” AM Best said in a new report.
Adding: “In prior years, new investors entered the market, but growth was somewhat muted by the release of trapped capital. Given the lack of events large enough to trap capital in more recent years, investors had been extracting their earnings. However, in 2024, many investors began to reinvest their earnings in the market, which further expanded true underlying capacity.”
Moreover, the rating agency also observed that the lower-than-expected losses from Hurricanes Helene and Milton, combined with strong investment income, ultimately allowed reinsurers to improve their capital positions in 2024 and supply the market with additional property capacity, which influenced pricing heading into 2025.
According to AM Best, the main concerns heading into 1/1 centered around the potential for another year of a potential $100 billion in industry losses, which just years ago led reinsurers to reduce property capacity, resulting in a hardened market.
“However, these losses were mostly related to traditional modeled primary perils. Previously, secondary perils that lacked sufficient modeling had plagued reinsurers and made it very difficult for them to price their business appropriately,” AM Best added.
The agency continued: “The hurricane losses of 2024 were more typical storms, which are incorporated in pricing for any standard reinsurance catastrophe treaty—paying for hurricane losses every few years is usually within any property cat reinsurers’ risk appetite. Additionally, although secondary peril activity remained unabated, higher attachment points and better underwriting and pricing made reinsurers less vulnerable to secondary peril losses.”
As mentioned, the hurricane losses were slightly less severe than originally anticipated, and as per AM Best, this coupled with strong investment incomes, allowed reinsurers to improve their capital positions and supply the market with more property capacity heading into 2025.
Taking this into account, AM Best has revised its 2024 estimate of traditional reinsurance capital down to $500 billion from $515 billion.
The agency noted that the revision was primarily due to special dividends paid among large reinsurers in the US and Bermuda market and reserve strengthening at year-end to address concerns about reserves by other companies.
“Nevertheless, the projected 6.8% increase for 2024 brings reinsurance capital above the previous high-water mark of $475 billion at year-end 2021,” the agency added.
English (US) ·