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Dedicated reinsurance capital to reach new heights in 2018: JLT Re

5th June 2018 - Author: Luke Gallin

Despite the impacts of 2017’s catastrophe events, global, dedicated reinsurance capital is expected to reach a new high by the end of the first-half of this year, as both traditional and alternative capacity providers continue to drive a supply / demand imbalance, reports JLT Re.

JLT Re logoJLT Re, the reinsurance arm of international brokerage JLT Group, recently highlighted that the global reinsurance market remains awash with capital, despite a series of hurricanes, earthquakes and wildfires driving an estimated $140 billion in insured losses in 2017.

“Dedicated reinsurance sector capital has been very strong with growth of over USD 10 billion during the first half of 2018, following roughly USD 7 billion of new capital raised in the final four months of 2017,” said David Flandro, Global Head of Analytics, JLT Re.

Global, dedicated reinsurance capital has been on the increase since 2009 following a slight dip in 2008, according to JLT Re’s data, with alternative, or third-party reinsurance capital growth outpacing that of the traditional space in more recent years.

Prior to 2017 catastrophe events and in the immediate aftermath, the permanence of alternative capital and its ability and willingness to reload was often questioned.

RMS

However, and as highlighted by Flandro, alternative capital’s response to the loss events, which saw the sector reload and expand in time for the January 1st renewals, underlined its commitment to the space, but also confirmed its influence as a dampener on post-event price hikes and as a potential hindrance to the traditional reinsurance market cycle.

“This affirms the now established trend of third-party capital rapidly entering the sector post-loss to fill the gap more or less immediately. The effects of this were evident in the intense competition at 1 June between alternative and traditional markets culminating in negligible rate rises despite Florida having recently suffered its first landfalling hurricane since 2005.

“This is a significant contrast to previous large-loss years which were all followed by significant – often double-digit – rate increases. It is now obvious that the means through which the sector raises capital at the margin have completely changed over the last decade, with huge implications for property-catastrophe reinsurance pricing and underwriting in particular,” explains Flandro.

While rates did increase at the January renewals and beyond for certain lines, most notably those impacted by losses, the message from the majority of industry participants was that rate movements were disappointing.

And, with competition remaining high and therefore a supply / demand imbalance persisting, the reinsurance market is likely to favour buyers throughout 2018, while further demonstrating the value of reinsurance protection.

Looking forward, JLT Re notes that whatever this year’s Atlantic hurricane season brings, the reinsurance sector is strongly placed to manage any potential losses.

“Buyers’ needs were adequately met at 1 June and more of the same is expected through the remaining mid-year renewals and into 2019. The value and efficiency of reinsurance protection is once again being demonstrated by allowing cedents to react speedily to underwriting opportunities,” explains JLT Re, in its June 1 industry note.

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