Global reinsurance growth ‘robust’ – but still has gap to close: Gallagher

Global reinsurance dedicated capital grew by 8.4% to $728 billion in 2021, driven by strong investment returns and improved underwriting, coupled with positive rate momentum in nearly all primary lines of business, a new report by global broker  Gallagher Re has revealed.

2021 was the third year in a row of “robust” growth despite the continued toll of natural catastrophe losses, although these were no worse than the latest five-year average.

The largest losses of the year came from tropical cyclones followed by severe thunderstorm. In the US, it was Hurricane Ida in August. In Europe, the largest loss-causing event was Storm Bernd, and in Asia, the events drawing the most attention were the thunderstorms in China.

Gallagher Re’s analysis of 17 reinsurers showed improvement in underwriting returns on an underlying basis. The underlying combined ratio improved to 99.8% from 100.7% a year ago, which is the first time since 2014 that it has fallen below 100%.

Interestingly, the benefit to combined ratios from reserve releases had been reducing since 2016, and this trend reversed in 2021, the report revealed.

Similarly, the average return on equity (ROEs) improved markedly, from 2.7% to 11.4% on a reported basis, and from 1.3% to 6.2% on an underlying basis.

Gallagher Re, however, noted that “the industry still has a gap to close” in terms of getting its underlying ROE up to its cost of capital, which exceeded 8% in 2021 due to higher equity and credit risk premiums.

The report highlighted a clear trend of capital or ‘supply’ growing faster than demand in 2021.

Premium growth remained robust throughout the year at an average of 17%, with an exception of Axis Capital that saw a slight decline a bit further in 2021.  Gallagher said this is the “strongest growth rate we have seen since at least 2015”.

The overall investment yield expanded from 3.4% in 2020 to 3.7% in 2021, with Markel, Fairfax and Alleghany recording the biggest increases. Partner Re, Renaissance Re and Sirius Point Re, on the contrary, recorded significant decreases of investment yields during the year.

James Kent (pictured), global chief executive officer of  Gallagher Re, said: “The 2021 result is good news for reinsurers and insurers alike.  Reinsurers faced another year of significant natural catastrophe losses, yet still came out with a robust and improved performance across their overall portfolios.

“Insurers in turn benefited from the strong capitalisation and resilient performance of the reinsurance sector.”

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