Driven by strongly improved profitability in 2023, dedicated capital of the global reinsurance industry increased 12% year-on-year to $729 billion, according to Gallagher Re’s latest Reinsurance Market Report. This marks the highest level since
Gallagher Re began conducting their analysis of the size and performance of the reinsurance market ten years ago.
The underlying ROE was above the cost of capital for the second consecutive year, improving to 14.3% from 12% in 2022. The headline ROE increased to 20%, up from 7% a year ago, the highest level in the past decade.
The improved underlying ROE was mainly due to lower combined ratios and higher running investment income. “Reinsurers' ROEs now comfortably exceed the industry's cost of capital,” explained Michael van Wegen, Head of Client and Market Insights (International), Global Strategic Advisory at Gallagher Re. “Taking into account exceptional 2023 profits, the industry has generated an ROE above the cost of capital for the 2017-2023 period cumulatively.” he added.
The combined ratio improved by 5.7 percentage points to 88.9% in 2023. This was driven by a decrease in natural catastrophe losses, a better accident year loss ratio excluding natural catastrophes, and a slight increase in the effect of reserve releases, according to the report. However, there was a slight increase in the expense ratio.
Reinsurers had a better experience with natural catastrophes compared to overall insured losses, which Gallagher Re estimates to be USD123B in 2023. In the last three years,
SUBSET companies 1 have carried a smaller proportion of these losses, due to higher attachment points and the nature of the 2023 catastrophe losses, which were mainly secondary perils rather than landfalling US hurricanes.
The underlying combined ratio improved to 96.0%, the lowest since 2014, due to lower attritional losses and normalized natural catastrophes.
“The improved underwriting performance and ROE strengthen the reinsurance industry's resilience and enable reinsurers to better absorb potential earnings volatility from, for example, natural catastrophe losses,” commented van Wegen.
The full report can be accessed here
Scan here to download the app