Reinsurance start up dearth will continue; investors may stay hesitant

While conditions look ideal for hotshot underwriters to launch new reinsurance gigs, those would-be debutantes are unlikely to secure major funding from big money which may have its sights set elsewhere, analysts at AM Best have indicated in recent research. 

“Although market interest in new carriers remains, it’s more unlikely that one of material size will be formed in the near future,” analysts at AM Best concluded of current market forces. 

Crucially, the private equity names that might be expected centre stage “appear to lack interest in deploying capital to newly formed reinsurers,” AM Best wrote, explaining in part the lack of newly funded enterprise in the hard market to-date.  

While “conditions remain optimal for new entrants,” conditions might not be so optimal for the capital providers that would back such new entrants, analysts suggest. 

For one, capital could be hesitant because so much existing capital waits in the wings, analysts suggested. The current hard market appears “influenced more by operating trends than overall market capital”. 

If 2022’s bond market slaughter brought any even mark-to-market decline in capital via asset losses, 2023 profits, a market rebound and a frenzy of new cat bonds have refilled any gap. There may be less void for new capital to fill in this hard market versus priors. 

What's more, the upward jolt on interest rates and higher risk-free rates of return have increased the hurdle rate on new ventures to what AM Best suspects might be “sometimes excessive levels”.

Some of the investors that have ventured into the space have decided to “focus more heavily" on service providers and agencies in the business than on traditional reinsurance carriers, analysts added. 

Comments come part and parcel with a move by AM Best to keep the outlook for the global non-life reinsurance industry at stable. 

AM Best cited improved property reinsurance margins following the 2023 market reset, a strong outlook for gains to hold in 2024, the reemergence of investment earnings and improving capital levels while justifying the outlook. Elevated cat activity, adverse reserve development in casualty plus elevated geopolitical and economic uncertainties keep a more positive outlook at bay.

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