A rush of new capital into the reinsurance sector after the third worst catastrophe loss year in history could have “long-term consequences for the structure of the reinsurance market”.

That is the view of reinsurance broker Aon Benfield, which said approximately $128 billion in insured losses had been absorbed without compromising the availability of reinsurance capacity.

In its Reinsurance Market Outlook report, Aon Benfield said 2017 had highlighted the protection gap with insurance covering only about 40 per cent of the $320 billion in global economic losses.

It added that alternative capital had responded to losses with a “show of strength” in continuing investor demand.

“Recent events provide the first real test of an alternative capital sector that supplied almost $90 billion of capacity in 2017, up from only $10 billion in 2005,” Aon Benfield reported.

“Significant funds backing fully collateralised reinsurance and retrocession contracts have been lost or trapped, but investors have responded by showing strong appetite for an asset class that is now viewed as being relatively more attractive.

“The sector has therefore proved its worth and come of age as a committed source of reinsurance capacity.”

Aon Benfield estimated that the private reinsurance market shouldered less than a third 2017’s insured losses, as primary insurers and government-backed programmes between them took the lion’s share, representing a “very manageable burden relative to a capital base of $600 billion”.

Hurricanes Harvey, Irma and Maria generated about $80 billion of losses, the report said.

In its outlook for midyear renewals, Aon Benfield saw no change in the market’s fundamental dynamic.

“Underwriting capacity remains intact for all lines of reinsurance, adverse rating actions have been few and far between and the capital management activities of most large reinsurers continue as planned,” the report said.

The insurance-linked securities market was still very active and remained attractive to investors with its low correlation to other asset classes a key consideration, the report added.