Reinsurers' First-Half Capital Shows Resilience with Slight Increase

A preliminary estimate calculated by Guy Carpenter and A.M. Best suggests that reinsurance capital demonstrated resilience at the end of the first half of 2020, showing a marginal increase of 1 percent from year-end 2019.

Recovering financial markets and asset valuations during the second quarter of the year helped shore up the traditional component of the reinsurance sector's capital base, a Guy Carpenter statement said. The slight increase in capital was largely attributable to a marked improvement in capital in the second quarter compared with the end of the first quarter, when financial market dislocation depreciated the value of reinsurers' asset portfolios.

Guy Carpenter noted that the reinsurance sector's capital position has also been bolstered by nearly $4 billion in capital raising by public reinsurers.

At the same time, third-party capital inflows into collateralized reinsurance and sidecars have declined year-to-date, the statement said, as investors assess COVID-19 uncertainty and prepare for the possibility of capital being trapped for a long period of time. Claims from COVID-19 compound the losses experienced over the last 3 years from a number of destructive catastrophes, Guy Carpenter said, a factor likely to affect insurance-linked securities funds' ability to raise capital heading into January 2021 renewals.

Still, catastrophe bonds, which have been marginally affected by losses, have continued to attract strong investor interest due in part to their post-event liquidity and peril specificity, Guy Carpenter said.