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Overall reinsurance capital declined slightly while alternative capital surged and catastrophe bonds saw another active year despite losses in the sector, according to a report Friday from Aon PLC.
Global reinsurance capital slipped 2% to $595 billion at the end of 2018, according to Aon.
At the same time, alternative capital jumped 11% to $99 billion, despite seeing recent losses. “Although this market continues to digest recent loss activity, longer-term investors are expected to remain committed to the segment,” noted Aon.
The losses have been substantial, with insured catastrophe losses over the past two years totaling just over $230 billion, according to Aon.
“While 2017 created a new peak at approximately $147 billion, 2018 losses alone are currently estimated at $85 billion,” the broker said.
This is 47% higher than the 2000-2017 average of $56 billion. “While these losses have been well-spread, this is still a substantial burden for the (re)insurance industry to absorb,” the report said.
Although global catastrophe losses from natural disasters in 2018 were down substantially from the near-record total in 2017, “payouts by the private insurance industry and government-sponsored programs were still the fourth-highest on record when comparing historical annual losses on an inflation adjusted basis,” Aon noted.
Insured losses in 2018 were driven by an active year for tropical cyclone landfalls in the Atlantic Ocean and Pacific Ocean basins, major U.S. wildfires, and severe convective storms, Aon said, cautioning, “Given the late-year occurrence and uncertainty surrounding some of 2018’s biggest events, loss totals at this time are to be considered preliminary and subject to change.”
Catastrophe bond issuance, however, remained robust despite industry losses, totaling $9.7 billion in 2018, the second most active year on record, according to Aon, which also noted that total limit outstanding is at a record high of more than $30 billion.
The sector is not immune to the loss activity as “the continuing entry of new funds is being offset by loss development on past events and redemption requests from a relatively small number of investors looking to exit,” Aon said, adding that it “expects the previous rate of growth to resume once this area of the market has fully digested the losses incurred over the last two years. Many long-term investors have made good returns over time.”
Dedicated reinsurance capital increased 2% in 2017 to $427 billion compared with 2016 despite catastrophe losses, according to an analysis from Guy Carpenter & Co. L.L.C. completed in conjunction with A.M. Best Co. Inc. at year-end 2017.