Reinsurance pricing could be affected by influx of alternative vehicles
Alternative-reinsurance vehicles could continue to be the primary source of new capacity in 2024, according to Bloomberg Intelligence. It said these vehicles will compete with rated-reinsurers and affect pricing.
Bloomberg Intelligence said that in 2023 there was essentially no balance-sheet reinsurance capacity added, apart from a capital raise at Everest. It added that catastrophe-bond issuance hit a record high of $16.4bn last year and expected returns remain above historical averages.
Matthew Palazola, senior insurance analyst, Bloomberg Intelligence, said: “Total reinsurance capacity could continue to grow as historically high alternative-capital returns fuel further issuance and draw demand. Alternatives to rated reinsurer balance sheets can come in many forms, such as cat bonds, insurance-linked securities (ILS) and sidecars. Alternative reinsurance capital dates back to the mid-1990s and has risen to about 16% of the market from 10% in 2014. Smoother capital-market transactions have made it easier for funding to enter the industry, which has limited price gains after large catastrophes.”
Bloomberg Intelligence said cat bonds could see further growth as higher pricing, along with increased money-market rates which hold the collateral, boosts yields and provide a greater expected return, while higher attachment points and retentions among primary carriers may boost interest in such securities. Expected returns on cat bonds appear to be at their highest since 2012.
The combination of lower capacity in traditional reinsurance markets and higher prices could entice capital inflows to the ILS market, said Bloomberg Intelligence. For cedents, catastrophe bonds provide additional capital capacity, allowing insurers to take on more exposure.
