Reinsurance capital rebounds strongly in 2023, cat bond issuance hits record high: Fitch
According to Fitch Ratings, reinsurance capital is estimated to have surged by 11%, reaching approximately USD 535 billion by the end of 2023, partially offsetting the losses incurred in the previous year.
The global reinsurance industry witnessed a robust recovery in capital during 2023, driven by strong earnings, financial market stabilisation, and the adoption of the accounting standard IFRS17 by major reinsurers, the report noted.
Key contributors to this resurgence were major reinsurers, which began increasing capital repatriation to shareholders and bondholders as capital buffers exceeded management thresholds. Fitch anticipates this trend to gain momentum throughout 2024.
Alternative capital, including record cat bond issuance, played a pivotal role in the recovery, expanding by 13% to about USD 105 billion in 2023.
The issuance of new cat bond notes reached an unprecedented USD 15 billion, doubling the volume seen in 2022 and setting an all-time high. The outstanding volumes of cat bonds also witnessed a notable 19% increase, reaching USD 41 billion.
The surge in alternative capital was fueled by attractive returns for cat bond investors, primarily attributed to the absence of significant loss events, robust pricing, and strong investment returns on collateral pools.
Despite concerns stemming from a lackluster performance in the previous five years and doubts about the reliability of catastrophe models, investor confidence strengthened throughout 2023, a trend expected to persist into 2024.
While tighter cat bond pricing may exert increasing margin pressure, especially on upper layers of property cat protection, Fitch remains optimistic about the sector’s resilience.
The collateralised reinsurance programs and sidecars within the alternative capital space notably stabilised assets under management in 2023.
This marked a reversal of the trend of net outflows experienced since 2019, with both alternative capital deployment forms benefiting from favourable claims development and strong collateral returns.
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