Bloomberg Intelligence forecasts continued dominance of alternative-reinsurance vehicles in 2024
Bloomberg Intelligence (BI) predicts that alternative-reinsurance vehicles will likely maintain their position as the primary source of new capacity in 2024, potentially impacting pricing dynamics in the reinsurance market, according to a recent report.
In 2023, BI notes a negligible increase in balance-sheet reinsurance capacity, excluding Everest’s capital raise, while catastrophe-bond issuance soared to a record-breaking $16.4 billion.
Matthew Palazola, BI Senior Insurance Analyst, highlights the sustained growth of alternative reinsurance capital, which has risen to approximately 16% of the market from 10% in 2014.
Palazola emphasises the diverse forms these alternatives take, including cat bonds, insurance-linked securities (ILS), and sidecars.
Despite significant price hikes in 2023-24, traditional balance-sheet reinsurance capacity saw minimal expansion, a departure from previous strong market cycles where new companies were established. Catastrophe bonds experienced substantial inflows, reaching over $16 billion in issuances in 2023.
Palazola underscores the attractiveness of cat bonds due to higher yields, particularly amid increased money-market rates, and heightened demand following events like Hurricane Ian.
Investor interest in insurance-linked securities may remain cautious due to potential capital traps, but Palazola points out that expected returns on cat bonds are currently at their highest since 2012.
He highlights that the catastrophe-bond multiple, as measured by Artemis.bm, for the full-year 2023 stands at around 4.54x, reflecting a significant increase compared to previous years.
However, the first quarter of 2024 suggests only a slight decrease in the multiple compared to the same period in 2023.
BI’s report suggests that the combination of constrained capacity in traditional reinsurance markets and rising prices could further incentivise capital inflows into alternative reinsurance vehicles, potentially reshaping the reinsurance landscape in the coming year.
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