First six months of 2023 sees reinsurers’ capital base rise and underlying ROE comfortably exceed cost of capital

First six months of 2023 sees reinsurers’ capital base rise and underlying ROE comfortably exceed cost of capital 150 150 Haggie Partners

Capital dedicated to the global reinsurance sector totalled USD709 billion at half year 2023, an increase of 13% versus the restated full-year 2022 base.

This is according to the latest Reinsurance Market Report, which tracks the capital and profitability of the global reinsurance industry and is published today by Gallagher Re, the global reinsurance broker.

The rise in capital was due to strong investment performance and steadily improving underwriting results. There was a notable lack of new capacity despite continued favourable market conditions.

Rate increases were the main driver of the continued strong premium growth of 8.7%. Volume growth was limited, partly due to rising attachment points and a shift in business mix.

The combined ratio improved on a reported basis to 87.6% (2022 HY: 89.2%) and on an underlying basis to 95.4% (2022 HY: 99.7%). The underlying combined ratio, in particular, was the strongest underwriting performance achieved over the ten years Gallagher Re has conducted this analysis.

On an underlying basis, the average return on equity (ROE) reported by reinsurers increased to 13.4%, a material improvement over 10.2% at 2022 HY, driven by improved underlying underwriting margins and higher running investment income. The reported ROE increased even more strongly to 19.3% from 4.4% at 2022 HY, driven additionally by investment gains.

For a second consecutive year the underlying ROE is well above the cost of capital after an elongated period of sub-par returns.

Tom Wakefield, CEO, Gallagher Re, said: “Global reinsurers have shown strong performance in the first half of this year, reporting increased capital alongside improved underwriting profitability and ROEs. On an economic basis, capital adequacy also remained robust and indeed generally improved. Higher interest rates and rate increases booked at renewals YTD provide a tailwind and the potential for reinsurers to improve ROE further.”

The Gallagher Re Reinsurance Market Report is a biannual publication providing in-depth analysis of the size and performance of the reinsurance market. Analysis is based on the Reinsurance Market Index group of companies, which for 2023 HY includes 41 reinsurers from across the globe