Best’s Market Segment Report: Global Reinsurers Meet Cost of Capital for First Time in Four Years

AUGUST 22, 2024 08:29 AM (EDT)

Best's Market Segment Report: Global Reinsurers Meet Cost of Capital for First Time in Four Years

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FOR IMMEDIATE RELEASE

OLDWICK - AUGUST 22, 2024 08:29 AM (EDT)
Reinsurers generated returns well above the cost of capital in 2024 due to positive underwriting results, driven by repricing and portfolio de-risking, according to a new AM Best report.

The Best's Market Segment Report, "Reinsurers Meet Cost of Capital for First Time in Four Years," is part of AM Best's look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo. Other reports, including AM Best's ranking of the top global reinsurance groups and in-depth looks at the insurance-linked securities, Lloyd's, life/annuity, health and regional reinsurance markets, will be available during August and September.

According to this report, the reinsurance industry's median weighted average cost of capital rose in 2023 to 8.12%, representing the first time in four years that the reinsurance industry had met their cost of capital. Between 2011-2021, the largest median percentage posted was 9.31% in 2021; the industry's median weighted average cost of capital in 2022 was 7.35%. At the same time, the industry's return on equity reached a 12-year high in 2023.

"The hardened market has led to more sustainable pricing momentum, enhancing reinsurers' ability to meet their cost of capital over the medium term," said Sridhar Manyem, senior director, Industry Research and Analytics, AM Best.

Reinsurers look to optimize their cost of capital and maximize their returns while taking risks commensurate with their risk appetites. Significant and unexpected volatility in returns can indicate inefficiencies with regards to managing risk, resulting in a higher cost of capital. During the prolonged low interest rate environment, investors' interest in reinsurance through traditional equity, third-party capital and insurance-linked securities (ILS) grew, as investors diversified their portfolios.

"Reinsurers' failure to meet their cost of capital consistently in recent years has tested investors' risk appetite," said Helen Andersen, industry analyst, AM Best.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=345846.

A video discussion of this report also is available at http://www.ambest.com/v.asp?v=ambglobalrecapital924.

For future global reinsurance reports ahead of Rendez-Vous de Septembre, please visit Best's Research.

Lastly, AM Best will host its annual reinsurance market briefing at Rendez-Vous de Septembre on Sept. 8, 2024, at 10:15 a.m. (CEST) in Monte Carlo. For more information, please visit http://www3.ambest.com/rd/rd.aspx?rd=RVDS2024.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.