Reinsurance News

Convergence growth takes overall reinsurance capacity to $420bn: A.M. Best

10th January 2017 - Author: Luke Gallin

International ratings agency A.M. Best has said that total, dedicated reinsurance capacity is estimated to reach $420 billion for 2016, growth of 5% from the previous year, and helped by the continued expansion of the convergence space.

According to a recent A.M. Best reinsurance market briefing overall, dedicated reinsurance capacity will likely see growth of 5% from year-end 2014 and 2015 ($400 billion) to the end of 2016, totalling $420 billion.

Helping the global reinsurance industry record growth in 2016 was the continued expansion of the convergence space, which A.M. Best expects to reach an estimated $75 billion for 2016, up 10% from the $68 billion recorded at the end of 2015.

Despite alternative capital continuing to expand its presence and influence within the global reinsurance industry, A.M. Best explains that the speed at which convergence capital is entering the marketplace seems to have slowed, when compared with more recent years.

This is likely a reaction to ongoing reinsurance market headwinds, which has seen reinsurance market players, both traditional and alternative, struggle to achieve the kind of underwriting profits they’ve been used to in the past.

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While the low interest rate environment continues to hinder returns on the investment side of the balance sheet.

“The global reinsurance sector remains by all accounts overcapitalized, according to A.M. Best and Guy Carpenter’s estimate, despite the slower influx of capacity,” said A.M. Best.

The marketplace remains highly competitive, says A.M. Best, adding that some in the space feel the sector could be approaching the bottom of the soft cycle as underpriced programmes are becoming increasingly difficult to fill.

“Nonetheless, current accident-year underwriting margins will remain pressured for the near term, as rates remain at historical lows,” said A.M. Best.

At the same time, the ratings agency notes that a lack of large U.S. catastrophe losses, ongoing favourable reserve releases, and improved capital management strategies, suggests “the global reinsurance composite as having reasonable results for 2016.”

“While current market conditions appear to be stabilizing, competition remains intense and quality of earnings under pressure,” said A.M. Best.

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