Reinsurers increasingly directly deploying capital into primary insurance market

The firms making up the global reinsurance market are increasingly deciding to commit their capital directly to primary insurance activities, rather than to reinsurance deals.

According to data from ratings agency AM Best, 2023 was the second year in a row that over half (50%) of the market’s capital had been deployed to primary insurance activities.

In 2023, the ratings agency’s aggregate data for the market showed that 53% of the capital available to global reinsurers was allocated to primary insurance, with 47% allocated to reinsurance activities – this ratio was the same as in 2022.

The last time that more than half of the industry’s capital was allocated to primary insurance was in 2016, with 53% committed to direct insurance. However, this percentage has not fallen below 47% in the intervening years.

During AM Best’s market briefing at RVS 2024 in Monte Carlo on Sunday (8 September 2024), the agency’s senior director and head of analytics and operations, Angela Yeo, explained: “For many years now AM Best has noted a gradual shift in reinsurers moving their business mix towards primary insurance – the specialty insurance lens.

“A shift has happened – reinsurers are considering how to change their underwriting strategies, meaning their exposure to nat cat, for example, has been reduced.”

Reinsurance relevance

As reinsurers increasingly commit capital to the primary market, questions arise about the long-term need for the sector to maintain its relevancy by ensuring that risk mitigation can be accessed in less profitable, high risk areas.

Greg Carter, managing director for analytics at AM Best, said: “That’s an important area for the reinsurance industry and there is a bit of a danger that we’ve seen that pull-back from working levels and a step back from the risk, which is very clearly demonstrated by the allocation of capital away from reinsurance towards primary business.

“The issue is that, if reinsurers step too far back from the risk, then what is the relevance? It’s not an existential moment for the industry, but it does highlight that primary markets will question whether they’re getting value for money or sufficient coverage.”