Reinsurance demand will increase slightly in 2016 due to factors such as updates to rating agency capital models, the continued privatisation of reinsurable and insurable risks from government pools, and reinsurers and insurers expanding into new lines of business, according to Aon Benfield’s market report.
The report outlined areas of expansion opportunity for insurers and reinsurers, including US mortgage risk, annuity risk, privatisation of risk and rating agency criteria changes.
In terms of market dynamics, the report revealed that at the end of Q2 2015, total global reinsurance capital had declines of two percent to $565 billion. Set against an environment of stable operating earnings and light catastrophe activity, the decrease was in part due to currency fluctuations.
Predominantly, this was caused by the weakening of the euro against the US dollar, higher bond yields affecting reinsurer bond investment market valuations, as well as share repurchases and dividends.
The alternative capital segment comprised record levels of capacity from sidecars $8.4 billion, industry loss warranties ($4 billion), and collaterised insurance (32.5 billion), while catastrophe bond capacity contributed $23.5 billion to the total.
Bryon Ehrhart, CEO of Aon Benfield Americas, said: “Reinsurance market dynamics in 2015 continue to provide our clients with very high quality options to source accretive underwriting capital—we expect these dynamics to remain through the upcoming 1 January 2016 renewal cycle.”
At the end of Q2 2015, insurer capital remained unchanged from year-end 2014, standing at $4.2 trillion.
The report highlighted that mergers and acquisitions activity in the global insurance and reinsurance markets increased dramatically during 2015, with deal volume totalling $73.3 billion across 461 deals to 1 September, compared to $16.8 billion across 387 deals in the equivalent prior year period.
At 1 September, global insured catastrophe losses had reached $16 billion, which is below the historical 10-year average of $61 billion.
