McKinsey and Co. reports that alternative capital can help drive returns and plug the P&C insurance gap. (Olivier Le Moal/Adobe Stock)
The global property and casualty (P&C) insurance market is facing a significant capacity crunch, with demand outstripping supply. Losses from increasingly frequent and severe catastrophes, emerging exposures, new types of risk, and rising interest rates have produced a surge in demand for insurance cover. These same forces shrunk supply, with both reinsurers and investors reassessing their risk tolerance and seeking to minimize exposure to tail risks.
But there is good news. Alternative capital from sources outside of traditional reinsurance has surged and embedded itself into P&C insurers' capital structure. This was already happening a decade ago. McKinsey analysis indicated that alternative capital deployed into reinsurance grew significantly from 2010 to 2020, by 15% per year, and has consistently contributed 13% to 18% of total reinsurance capital since 2015. Although total reinsurance capital declined 11% from 2021 to 2022, alternative capital stayed constant at about $95 billion.
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