Reinsurance industry’s alternative capital sees best performance in 20 years

The strong performance of collateral returns contributed to one of the best years in the market's history.

The re/insurance market in 2023 saw over $100b in alternative capital, marking a 7% increase from the previous year. Aon’s Reinsurance Market Dynamics report indicated that this growth was particularly significant in the context of rising property reinsurance pricing.

Insurance-linked securities (ILS) investors enjoyed high risk-adjusted margins, benefiting from a North Atlantic hurricane season with relatively low losses. The strong performance of collateral returns contributed to one of the best years in the market's history.

The catastrophe bond market grew by over $7b, a 21% increase from 2022, reaching an all-time high of over $42b by year-end. The year 2023 set a record with $15.4b in catastrophe bond issuance.

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The market serviced a variety of issuers, including insurers, reinsurers, and government entities. Notably, the California Earthquake Authority issued a record $1.51b in catastrophe bonds. There were also 11 new sponsors and returns from entities like Chubb and The Hartford.

Additionally, the fourth quarter saw significant growth with $5.2b in total issuance volume. Initially, catastrophe bond pricing tightened, but it stabilized later in the year due to a surge in new transactions and some ILS investors reallocating their capital.

The European reinsurance market saw increased activity, with nearly £600m of European paper issued in Q4, reflecting insurers' search for additional capacity.

Sidecar investors, on the other hand, achieved returns of over 30%, thanks to strong underlying reinsurance margins and the absence of major global natural catastrophes.