Best’s Special Report: Despite Record Returns for Reinsurers, New Company Formations and Investors Are Not Following Suit
08 Julio 2024 - 2:00AM
Business Wire
Despite returns reaching a three-decade high for reinsurers, a
new class of companies has yet to materialize in the segment,
defying past trends, according to a new AM Best report.
A Best’s Special Report titled, “The 2023 Reinsurer Class: The
Class That Never Was,” notes that the reinsurance segment is
generating risk-adjusted returns not experienced since 1993.
However, a new class of reinsurers has yet to form despite existing
hard-market conditions that were present when prior new classes
materialized. In past years, a large-scale loss has precipitated
the shift by depleting existing capital and forcing reinsurance
prices higher, typically whetting the appetite of investors in the
process.
“A class of startup reinsurers usually quickly forms to
capitalize on the interruption in the reinsurance demand-supply
equilibrium,” said Dan Hofmeister, associate director, AM Best.
“Many of these new reinsurer formations merge or are acquired as
the market cycle returns to the soft phase of the cycle.”
In addition to Sept. 11, hurricanes Andrew (1992), Ike (2008)
and Katrina, Rita, and Wilma in 2005 serve as the more-notable
examples of catastrophe events that led to a class of reinsurers
entering the segment. Elevated property catastrophe activity since
2017 (after an extended period of relatively benign years), coupled
with a substantial increase in secondary perils, caused reinsurance
pricing and reinsurance contract terms and conditions to improve
notably, continuing, albeit at a decelerating rate, through the
June 1, 2024, renewal.
This hard reinsurance market is different from many of the prior
hard markets in that it was not caused by a single, large loss, but
by the accumulation of a series of property catastrophe events,
which led to significant underwriting losses and resulted in
earnings events for almost all reinsurers.
“AM Best has issued a number of preliminary credit assessments
on business plans from high profile management teams, which have
had similar difficulties in fundraising,” said Carlos Wong-Fupuy,
senior director, AM Best. “Many of them note that large, passive
capital investors, such as sovereign wealth funds, endowments and
pension funds, still have healthy levels of interest in the
industry.”
According to the report, private equity-venture capital
investors do not appear to be interested in supporting startup
non-life reinsurers. Primary drivers behind this may also include
competitive conditions in the reinsurance market and the
availability of insurance-linked securities (ILS) that may have
more appeal in a hard reinsurance market given their concentrated
nature.
To access the full copy of this Best’s Special Report, please
visit
http://www3.ambest.com/bestweek/purchase.asp?record_code=344273.
To view a video with AM Best Associate Director Dan Hofmeister
on this report, please visit
http://www.ambest.com/v.asp?v=ambreinsurerclass723.
AM Best is a global credit rating agency, news publisher and
data analytics provider specializing in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in London, Amsterdam,
Dubai, Hong Kong, Singapore and Mexico City. For more information,
visit www.ambest.com.
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Dan Hofmeister Associate Director +1 908 882
1893 dan.hofmeister@ambest.com
Christopher Sharkey Associate Director, Public
Relations +1 908 882 2310
christopher.sharkey@ambest.com
Carlos Wong-Fupuy Senior Director +1 908 882
2438 carlos-wong.fupuy@ambest.com
Al Slavin Senior Public Relations Specialist +1
908 882 2318 al.slavin@ambest.com