The global reinsurance industry experienced a significant boost in profitability and return on equity (ROE) in 2023, leading to a 12% increase in capital to a record $729 billion, according to Gallagher Re’s 2023 Reinsurance Market Report.

The annual report tracks the capital and profitability of the global reinsurance industry, analyzing 43 global reinsurers in the Gallagher Reinsurance Index, as well additional detail on 16 “subset” companies that disclose natural catastrophe losses and prior-year reserve releases.

“Underlying ROEs were materially higher due to a further reduction in underlying combined ratios and higher recurring investment income,” the report’s authors stated. “Reinsurers’ ROEs now comfortably exceed the industry’s cost of capital.”

The industry’s capital growth was driven by the companies in the index, which contribute over 80% of the industry’s total capital, and an increasing amount of non-life alternative capital, Gallagher Re stated.

Index reinsurer capital rose by 12% to $599 billion, primarily due to higher net income and unrealized investment gains, largely attributable to National Indemnity, whose significant U.S. equity holdings rose in value during the year. Alternative capital, including catastrophe bonds, totaled $107 billion, up from $96 billion in 2022.

Net income posted by the index reinsurers was $97 billion, up from $23 billion at FY 2022, due to higher underwriting and investment profitability.

For the 16 subset companies, which provided the relevant information, revenue growth remained strong at 7.6%, but down from historic growth seen in 2021 and 2022.

The reported combined ratio for the subset group improved by 5.7 percentage points to 88.9% in 2023, despite a moderate increase in the expense ratio. This was thanks to a lower impact from natural catastrophes, a reduction in the current-year attritional loss ratio, and slightly increasing reserve releases.

“The better natural catastrophe experience of the reinsurers stands in sharp contrast to overall insured natural catastrophe losses, which Gallagher Re estimates remain elevated at $123 billion in 2023,” the report stated. “Subset companies have carried a reduced proportion of these losses over the last three years, from 9.2% in 2021 to 8% in 2022 and 7.3% in 2023. This reflects higher attachment points and the nature of 2023 catastrophe losses, which were dominated by so-called ‘secondary’ perils, rather than landfalling U.S. hurricanes.”

The report also noted that the subset group generated an ROE of 14.3% in 2023, above the weighted average cost of capital for the 2017-2023 period.

“Not only do these factors bolster the resilience and potential earnings power of the reinsurance industry, but they place reinsurers n a better position to absorb any potential earnings volatility, such as from natural catastrophe losses,” the report stated.

Access the full Gallagher Re report here. &

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