Alternative capital hit $92bn as reinsurance returned to pre-pandemic high: Aon

Global reinsurance capital levels returned to their pre-pandemic high at $625 billion by the end of September 2020, with a slight rise in alternative reinsurance capital recorded during the third-quarter by broker Aon.

The insurance and reinsurance brokers latest measure of reinsurance capital around the world sees traditional reinsurance capital at a new high of $533 billion, up $3 billion during Q3 2020, helped by the capital market recovery after the pandemic as well as new capital raises from equity issues.

Alongside this, alternative reinsurance capital, made up of collateralized reinsurance, catastrophe bonds, reinsurance sidecars and other instruments such as industry loss warranties (ILW’s), grew by $1 billion during the third-quarter to end the period at $92 billion.

Around $10 billion of new equity issuance, plus the steady rebound in global capital markets after the initial pandemic related dip, helped traditional reinsurance capital reach its new high.

While alternative capital rose during Q3 to $92 billion, it remains down slightly on the end of 2019, approximately 4% lower.

Aon notes that around 60% of the total alternative capital was commanded by the top 10 insurance-linked securities (ILS) fund managers by the end of Q3 2020, at roughly $54.9 billion.

Some of the assets supporting collateralized reinsurance remain trapped though, so not all of this capital is readily available for deployment still.

Overall reinsurance capital is seen as adequate to meet demand by Aon, but despite supply being abundant again it is still expected that capital deployed will command better terms than have been seen in the market over recent years.

Which suggests more capital can be expected to come in, to take advantage of improved reinsurance market pricing and terms.

The reinsurance industry is now poised for growth, Aon believes, saying that, “It has shown continued resilience in 2020 and many reinsurers ended the year positioned to grow in 2021 and beyond.

“Additional new capacity expected to come on-stream in the early part of the year will help to mitigate the expected pressure on reinsurance terms.”

Which suggests additional firming may be harder-won, as capital looks likely to begin to pressure reinsurance price over the course of this year, should losses be within expected ranges.