Dedicated Reinsurance Capital Grows 7 Percent Amid Hard Market

Total dedicated reinsurance capital surged by 7 percent in 2023, reaching $568 billion, with projections indicating further growth in 2024, according to A.M. Best's latest report, titled "Dedicated Reinsurance Capital Thrives in Hard Market."

The report reveals that traditional reinsurance capital increased by approximately $57 billion, or 14 percent, to $468 billion in 2023. Notably, the most significant growth was recorded in Bermuda, driven by strong operating returns among Bermudian companies, excluding Berkshire Hathaway's National Indemnity. A.M. Best anticipates the reinsurance market will continue to thrive, with total dedicated reinsurance capital expected to reach between $620 billion and $625 billion by the end of 2024, factoring in a 10 percent rise in traditional capital.

Despite these increases, traditional reinsurance capital has remained below 60 percent of the consolidated shareholders' equity for groups identifying as reinsurance writers since year-end 2018. This figure declined to 49 percent in 2023, as reinsurers increasingly diversified into primary and specialty insurance lines.

The report also highlights a 3.7 percent increase in third-party reinsurance capital in 2023, totaling $100 billion. A.M. Best, in collaboration with Guy Carpenter, estimates that third-party reinsurance capital will grow to between $105 billion and $110 billion in 2024, driven by growth in catastrophe bonds and collateralized reinsurance.

"Capital in the industry has expanded quickly, due to higher retained earnings and lower mark-to-market investment losses. Additionally, the absence of startup reinsurers has allowed traditional reinsurers to maintain their market shares without compensating with softening conditions. The reinsurance market seems well-positioned to absorb a reasonable level of losses and still grow capital," said Dan Hofmeister, associate director, A.M. Best.

A video discussion of this report is available here.

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