Combination of factors has led to a "strong recovery" in reinsurance capital in 2023: Fitch

According to analysts at Fitch Ratings, the combination of a strong earnings generation, the stabilisation of financial markets, and the move to the accounting standard IFRS17 of major reinsurers, has led to a “strong recovery” in reinsurance capital in 2023.

Fitch said that it expects it to have grown by 11% to reach around USD 535 billion, by end-2023, partially reversing the losses seen in 2022.

Analysts explained that a select number of reinsurers started to increase capital repatriation to share- and bond-holders as capital buffers above management thresholds increased.

The company expects this to accelerate in 2024.

Moreover, the agency also noted that it expects alternative capital to have grown by 13%, reaching around USD 105 billion, in 2023.

This increase is mostly due to record cat bond issuance, Fitch said.

Looking back at 2023, a substantial USD 15 billion of new cat bond notes were issued, which doubled the volume seen in 2022 and also set an all-time high.

At the same time, the outstanding volumes of cat bonds also witnessed a robust increase, climbing 19% to reach USD 41 billion.

Additionally, analysts highlighted how strong inflows were triggered by “very attractive” returns for cat bond investors in 2023, which emanated from the absence of large loss events, strong pricing, and a strong investment return on collateral pools.

Fitch also noted that the concerns which correlated due to poor performance over the past five years, as well the poor reliability of catastrophe models, have increasingly faded over 2023.

“We believe this will continue in 2024 despite tighter cat bond pricing, which will exercise increasing margin pressure, particularly on upper layers of property cat protection,” Fitch said.