Market capacity

Hurricane Andrew hit Florida in August 1992 and cost the market around fifteen and a half billion dollars, enough to put several insurers out of business. Within months a wave of new reinsurers was formed in Bermuda, RenaissanceRe in 1993 among them, and the first catastrophe bonds followed in the years after. Market capacity is the volume of risk that insurers and reinsurers as a whole are willing and able to carry at a given moment, on a peril or a class. It depends on available capital, carriers' appetite, alternative capacity from the capital markets through insurance-linked securities, and the perceived profitability of the class. It breathes. A major loss destroys capital or cools appetite, and it contracts; good results draw fresh money, and it expands. That movement is one of the main drivers of the cycle, scarcity feeding the hard market and abundance the soft one. For an emerging risk, the capacity on offer says more about practical insurability than any model. Cyber was short of it against demand for years, for want of reliable modeling and out of fear of accumulation, which made its hard market worse. The first 144A cyber catastrophe bond, Beazley's PoleStar Re in January 2024, for 140 million dollars, a year after a first private deal of 45 million, opened the door to capital markets money on that risk.