Recovery in reinsurance capital notable amid strong technical results

Recovery in reinsurance capital notable amid strong technical results – AM Best | Insurance Business Asia

Reinsurance

Recovery in reinsurance capital notable amid strong technical results – AM Best

Despite the gains, rebound was somewhat offset by capital distributions

Reinsurance

By
Kenneth Araullo

The global reinsurance industry witnessed a substantial recovery from previous capital losses in 2023, as reported in a new commentary by AM Best. This recovery was attributed to strong technical results, unrealized capital gains, and increased reinvestment rates.

Investment losses which were experienced in 2022 saw a partial reversal in 2023, complemented by higher fixed-income reinvestment rates, leading to robust overall investment income for the industry. Despite these gains, the recovery was somewhat offset by capital distributions by market participants.

Last year, AM Best forecasted a 12.2% year-over-year increase in traditional reinsurance capital, amounting to US$461 billion. However, following the conclusion of the North American hurricane season, reinsurers were on track to nearly double that increase. The balance between available and deployed capital continues to be a significant factor.

Some reinsurers are also still determining their capital strategies, while others, like Berkshire Hathaway’s National Indemnity, opted for substantial special dividends, notably a US$83 billion payout in the third quarter of 2023.

Dan Hofmeister, associate director at AM Best, noted that reinsurers, with improved operating results and high discount rates, face decisions on capital release or investment in the hard market.

“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,” Hofmeister said.