Dedicated reinsurance capital grew by 6.9% over the course of 2024, but alternative capital that largely represents the capability deployed by insurance-linked securities (ILS) fund managers and thru other ILS structures expanded barely faster by 7% to achieve $107 billion this yr, in keeping with Guy Carpenter and AM Best.
Previously, the reinsurance broker and the rating agency had made a projection that alternative and ILS capital within the reinsurance market would end the yr at between $105 billion to as high as $110 billion.
Now, the pair have honed their projection and are available to a conclusion that alternative capital in reinsurance could have reached $107 billion at the top of 2024, which represents 7% growth from the $100 billion level it stood at a yr earlier.
It’s interesting to notice that greater than half of the choice capital growth got here from the catastrophe bond market in 2024.
By Artemis’ measure of 144A catastrophe bonds and the private cat bond issuances we have now tracked, the outstanding market expanded by just over $4.5 billion in 2024, so making up greater than half of the $7 billion growth in alternative capital that Guy Carpenter and AM Best have estimated.
The remainder of the choice capital expansion likely got here through a combination of larger collateralized reinsurance sidecars, more industry-loss warranty (ILW) contracts and capital raises for collateralized reinsurance and retrocession focused ILS funds during this yr.
Overall dedicated reinsurance capital is estimated to have reached $607 billion at the top of 2024 by Guy Carpenter and AM Best, which is a 6.9% increase on year-end 2023.
Traditional reinsurance capital grew from $468 billion a yr ago to $500 billion by the top of this yr, the pair consider, which represents 6.8% growth over the twelve months.
Alternative capital in reinsurance expanded the 7% from $100 billion at the top of 2023, to now reach $107 billion by the reinsurance broker and rating agency’s estimate.
Guy Carpenter highlighted profitability and retained earnings as key drivers of reinsurance sector capital growth, which matches for each traditional and alternative sides. Strong underwriting earnings in 2023 and 2024 are a key a part of the capital growth.
But, on the choice capital side, it seems clear (given the shortage of traditional reinsurance start-ups) that more fresh capital has been raised into ILS markets than into traditional reinsurers this yr, which helped the choice capital share grow barely faster, it seems.
As we all the time say, on the subject of these estimates of how much alternative capital is within the reinsurance market, the number itself is commonly less necessary than the expansion being seen.
Recall that, Aon already had alternative capital in reinsurance pegged at $110 billion as of the center of this yr.
It’s price noting these estimates don’t are likely to include the capital supplied by a spread of institutional investors to structures dedicated to backing life and annuity reinsurance risks. Neither do they have an inclination to incorporate all casualty focused structures backed by investor funding.
In consequence of which, depending on what you include, the overall amount of capital within the reinsurance market that might be considered alternative, or from direct institutional investors supporting risk quite than equity balance-sheets, may perhaps be higher.