Global reinsurance industry demonstrates significant recovery of capital losses

Written by Adam Cadle

08/01/2024

The global reinsurance industry demonstrated a significant recovery of prior-year capital losses in 2023, driven by strong technical results, unrealised capital gains and higher reinvestment rates, according to AM Best.

In its latest commentary, AM Best said that traditional reinsurers capitalised on the improvement in their technical results throughout 2023, as higher rates and stricter terms began to earn out on portfolios. Investment losses in 2022 were partly reversed in 2023. When combined with higher fixed income reinvestment rates, investment portfolios generated strong overall investment income for the market, AM Best added. The improved underwriting and operating results also helped to bring about the significant recovery in 2023, although this was partly counterbalanced by market participants’ capital distributions.

AM Best projected in August 2023 a 12.2% YOY increase in traditional reinsurance capital to US$461bn for 2023, but as the North American hurricane season ended, reinsurers were on pace to nearly double that projected increase.

“With still-high discount rates and significantly improved operating results, reinsurers need to determine whether to release capital or double down in the hard market,” said Dan Hofmeister, associate director, AM Best. “Regardless, our original projected increase of 12.2% in traditional reinsurance capital still appears adequate, albeit with some potential variation if reinsurers avoid deploying the new capital generated in 2023.”

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