New estimates from Guy Carpenter and AM Best show that total dedicated reinsurance capital was resilient at the end of the first half of 2020, increasing by 1% overall from year-end 2019.
Guy Carpenter and AM Best noted that a recovery in the financial markets and asset valuations during Q2 helped to shore up the traditional side of the reinsurance sector’s capital base.
This was largely due to a marked improvement in capital compared with the end of Q1, when financial market dislocation depreciated the value of reinsurers’ asset portfolios.
Additionally, the reinsurance sector’s capital positions has been bolstered by close to $4 billion of capital raising from public reinsurers.
That said, third-party capital inflows into collateralized reinsurance and sidecars vehicles have declined so far this year, as investors continue to be wary about the possibility of trapped capital amid the pandemic.
“Claims from COVID-19 compound the losses sustained over the last three years from a succession of destructive catastrophes and subsequent creep,” said Guy Carpenter and AM Best.
“This is likely to affect insurance-linked securities funds’ ability to raise capital heading into January 2021 renewals.”
Analysts also feel that the perceived lack of correlation between reinsurance and other more traditional asset classes is now being re-evaluated for systemic, borderless risks such as global pandemics.
Catastrophe bonds, however, have continued to attract strong investor interest due in part to their post-event liquidity and peril specificity.
Overall, Guy Carpenter and AM Best observed a 2.7% decrease to alternative capital during the first six months of 2020.
