A record breaking year for growth rates in reinsurance and alternative capital sees reinsurance back to pre-GFC levels
The global reinsurance market saw continued growth throughout 2014 as a result of a burgeoning capital base and greater access to alternative markets. According to the Aon Benfield Reinsurance Market Outlook, reinsurer capital grew to USD575 billion, including USD62 billion of deployed alternative capacity. Both of these surpassing previous years’ growth rates to reach record highs.
The report, which examines the trends seen in the global reinsurance industry during 2014, cited a 6 per cent (USD35 billion) growth in global reinsurance capital since year end 2013. While non-traditional capital increased by approximately 25 per cent. Healthy retained earnings, below average catastrophe losses and unrealised investment gains were cited among the contributing factors.
Other key findings from the report:
- Supply growth continues to outpace reinsurance demand: reinsurer capital grew to USD575 billion including USD62 billion of deployed alternative capacity – both records. The growth rates in reinsurance capital and alternative capital deployed were 6 and 25 percent, respectively.
- Alternative capital substantially deployed to property catastrophe risks: non-traditional capacity increased by more than USD12 billion in 2014, an increase of almost 25 per cent to USD61.9 billion over 2013. Alternative capital is now 40 to 50 per cent of global catastrophe reinsurance capital.
- Catastrophe bond issuance: the end of the 2014 calendar year marked a new record for annual property catastrophe bond issuance with a total of USD8.0 billion of limit placed. The groundbreaking period successfully continued the ascension of the catastrophe bond market since the financial crisis to surmount its prior annual peak of USD7.9 billion established in 2007. Although a record for property catastrophe bond issuance, the year fell just short of the record for total issuance (when including life and health transactions). Total issuance for 2014 reached USD8.2 billion[1].
- Slow demand growth: despite an increase in insurer capital overall demand for reinsurance remained relatively stable year over year in major markets as a result of the continued downward trend in pricing and new capacity providing alternatives to traditional occurrence structures.
- Global catastrophe losses well below average: insured global catastrophe losses in 2014 were at their lowest levels since 2009. Catastrophe-related losses in 2014 were tentatively listed at USD3 billion, which is down nearly 38 per cent from the 10-year average of USD63 billion. The losses are down 20 per cent from those sustained in 2013 (USD49 billion) and down 49 per cent from 2012 (USD77 billion).
- Thunderstorms becoming costlier for worldwide insurers: for the second consecutive year, the severe thunderstorm peril was the costliest for the global insurance industry. With the exception of severe weather (convective storm) and winter weather, the rest of the natural disaster perils were either at or below their recent 10-year averages.
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[1] Aon Benfield Securities’ 2014 issuance figure excludes almost USD500 million in new issuance through private ILS structures