Reinsurance capital globally hit a new peak of $585 billion in the first half of this year, a jump of 4 per cent on the 2015 full year figure.

To put that capital pile in context, the ten-year median average for global insured losses is $46 billion.

Today’s sector capacity is a number of times larger than the approximately $130 billion of insured losses racked up in 2011, an exceptional year when a major earthquake and tsunami in Japan contributed to the heaviest insured losses seen during any single year in the past decade.

For the first eight months of this year insurance-related catastrophe have been trending higher than pervious years and are on track to match the ten-year average.

The estimate of current global reinsurance capital comes from Aon Benfield, which noted that overall reinsurance supply has increased by more than 70 per cent since 2008 when it dipped to $340 billion.

The company has also highlighted a narrowing of the capacity gap as demand grows. Insurer capital was $4.2 trillion, up 3 per cent on 2015, and matching the level seen in 2014 before the strengthening dollar impacted earnings last year.

“The gap between reinsurance supply and demand has narrowed over the past year, driven by the improved economics of purchasing and reassessment of the core value of the product. However, ample capacity remains available to support current growth aspirations and risk transfer needs,” stated Aon Benfield in this month’s Reinsurance Market Outlook publication.

It said that last year there had been a small uptick in the cession ratio for the global property and casualty industry, and a further increase is considered likely this year.

“The lower pricing points delivered by alternative capital are clearly a factor, but the broader point is that reinsurance is growing in relevance as a proven mechanism for sharing risk, managing capital and controlling earnings volatility in the current environment,” Aon Benfield said.

“This is partly explained by the global trend towards risk-based regulatory regimes, which fully recognise the beneficial impact of reinsurance on cedents’ capital positions.”

Poor underwriting results in certain casualty classes, out-sized losses from regional exposures and the introduction of Solvency II have all been catalysts for the increase in demand.

One area of growth has been US mortgage credit. Aon has helped Freddie Mac place $5 billion of reinsurance in this area since 2013.

Looking at market specifics, for the first six months of this year traditional reinsurance capital accounted for $510 billion, up 3 per cent. This was driven mostly by unrealised gains on bond portfolios associated with declines in interest rates. A second factor was the modest weakening of the US dollar relative to other currencies.

Alternative capital rose by 5 per cent to $75 billion, reflecting more collateralised reinsurance structures. Catastrophe bond issuance slowed to $3 billion during the half-year period, despite a record first-quarter.

So far this year, severe convective storms in the US have caused insured losses of $17 billion. There have been further insured losses associated with storms in Europe, the Kumamoto earthquake in Japan and the wildfire in Fort McMurray, Canada.

Aon Benfield also pointed to last month’s earthquake in the Umbria region of Italy, where anticipated insured losses of hundred of millions of dollars will be “a mere fraction” of the overall multibillion economic costs.

The company stated: “Homeowners insurance in this part of Italy does not typically cover earthquake damage, and the majority of residents do not own separate insurance policies.”

This gap between insured losses and economic losses was lamented in the report’s executive summary, where Aon Benfield said: “Rarely spoken about is the critical societal role of reinsurance in rebuilding communities in a post-loss environment.

“Aon Benfield remains committed to closing the ‘protection gap’ between economic and insured losses around the world.

“At a time of plentiful capital, it is sad to note that only a fraction of the losses from the recent earthquake in Italy will be recoverable, demonstrating that this is not just a feature of developing markets.”