Reinsurance market stable despite the absence of new entrants

Arthur J. Gallagher reports four reasons for the lack of new entrants.

The reinsurance market has ample and well-diversified supply, allowing reinsurance buyers to adapt flexibly across various sources of capital, an Arthur J. Gallagher report said.

One notable aspect of the tightening reinsurance market over the past 18 months is the absence of new entrants. 

Unlike previous periods of market hardening, characterised by the emergence of start-up reinsurers, the 2023-2024 hard market—the strongest and most synchronized since 2001—has deviated from this pattern.

Brian Shea and William Dubinsky identify four reasons for the lack of new entrants during this period and, except for start-ups focused on casualty, do not foresee significant changes.

The first cause is there is no capacity gap for new entrants to fill. Thus, incumbents don’t see the need to raise capital to participate in better market environments.

Secondly, a “residual scepticism” regarding profitability remains in the global reinsurance market. Despite 1.1.23 renewals enthusiasm, the lack of delivery reinsurers presented dragged the trajectory. Specifically, paramount NatCat losses were consistently more than expected.

There have also been concerns regarding market duration, a third cause for concern. One alternative that investors can support the hard market cycle without the commitment to duration is to invest in insurance-linked securities – versus funding a start-up with permanent equity.

Lastly, the release of private equity (PE) has been at snail's pace over the past two years. Even the reinsurance sector’s PE deal activity has fallen 19% in 2022, and worse in 2023 with a 64% landslide.

Meanwhile, new capital has been entering the alternative capital space, marked by record cat bond issuance in 2023 and likely again in 2024. Despite the absence of new entrants, the reinsurance supply has become more diversified.