Reinsurance capital squeezed in 2018

January 14 2019 by InsuranceAsia News Staff

Traditional capital saw a decrease of 4% over the first nine months of the year, according to Aon Reinsurance’s latest market report. The reasons included rising interest rates and a strengthening US dollar.

Global reinsurance capital overall fell 2% from US$605 billion at the beginning of 2018 to US$595 billion at the end of the first nine months of 2018. While traditional sources of capital fell, alternative capital rose 11% to US$99 billion — an increase of US$10 billion.

Reinsurance demand showed some small increases in traditional products and lines driven by regulatory requirements, attractive market dynamics for buying and recent losses in non-peak territories that have advocated for greater coverage. However, even with this increase, supply continues to outstrip demand.

While traditional reinsurers have been coping relatively well with the market conditions, alternative capital investors have experienced a combination of lower than expected pricing, “creep” on 2017 events and further losses in 2018, according to Aon. Significant amounts of collateral have become trapped and the continuing commitment of newer participants is being tested. This is affecting areas most dependent on this form of capacity, notably the retrocession market.

Insured catastrophe losses over the past two years were approximately US$230 billion. While 2017 was a record year at approximately US$147 billion, partly as a result of hurricanes Harvey, Irma and Maria, Aon is estimating 2018 losses at US$85 billion, 47% higher than the 2000 to 2017 average of US$56 billion. The 2018 losses are the fourth highest on record.

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