Reinsurance capital hits decade high to $729bn; ‘exceptional’ profits in ’23
The global reinsurance industry capital surged by 12% year-on-year reaching $729 billion in 2023, marking the highest level recorded in the past decade. This growth was fuelled by “exceptional” profitability throughout the year, alongside a more favourable experience with natural catastrophes, a latest report from Gallagher Re has indicated.
According to Gallagher Re’s analysis of a subset of 16 reinsurers, return on investment (ROE) rose strongly in FY2023, climbing from 7.1% to 20.2%, “comfortably exceeding” the cost of capital. The increase was largely driven by a higher investment gains yield and a reduced impact from nat cats. Additionally, the underlying ROE improved for the second consecutive year, reaching 14.3% from 12% in 2022, primarily due to lower combined ratios and higher running investment income.
With recent rate increases and reinvestment rates, Gallagher analysts predict a “likely” continuation of the upward trend in reinsurers' underlying ROEs.
Michael van Wegen, head of client and market insights (International), global strategic advisory at Gallagher Re, highlighted: “Reinsurers' ROEs now comfortably exceed the industry's cost of capital. Taking into account exceptional 2023 profits, the industry has generated an ROE above the cost of capital for the 2017-2023 period cumulatively.”
The combined ratio improved by 5.7 percentage points to 88.9% in 2023, and underlying combined ratio improved to 96.0%, the lowest since 2014, due to lower attritional losses and normalised natural catastrophes. This improvement was attributed to reduced nat cat losses, a better accident year loss ratio excluding nat cats, and a slight increase in the effect of reserve releases, according to the report. However, there was a slight increase in the expense ratio.
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.
Van Wegen said: “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.”
Gallagher Re began conducting its analysis of the size and performance of the reinsurance market ten years ago.
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