Underwriting strong, yet ROE weakening

Underwriting performance remains strong, but return on equity (ROE) and shareholders’ equity have been impacted by investment markets, according to Gallagher Re’s latest assessment of global re/insurers’ financial health.

The report by Gallagher Re’s Strategic and Financial Analytics teams, titled “ Global re/insurers’ H1 2022 financial results”, published on August 23, summarises key themes emerging from global re/insurers’ financial results for the first half of 2022.

The report found that premium growth averaged 12 percent in H1, supported by continued favourable pricing for commercial lines and reinsurance business.

Additionally, Q2 premium increases tended to be higher than those in Q1. During Q2, nine of the 25 companies in Gallagher Re’s dataset reported a greater than 20 percent premium increase year on year, versus just five of 25 at Q1.

The report notes that some management teams said they expect commercial premium increases to continue to outpace loss cost trends into 2023. While that is positive, and a trend that has continued for some time, the report notes that the average attritional loss ratio this quarter ticked up by 1 percentage point versus the prior year.

H1 underwriting results remained strong with a 94.1 percent combined ratio (H1 21: 93.8 percent), supported by higher premiums, lower natural catastrophe loss impact, higher prior year reserve development, and a lower expense ratio. These positive factors were offset by the higher attritional loss ratio, which was due in part to a rise in personal lines loss trends.

“Although not a significant driver of overall H1 results, some re/insurers established reserves for claims exposure relating to the war in Ukraine,” states the report. “Significant uncertainty remains around ultimate loss estimates and we will continue to monitor these exposures as claims emergence becomes clearer.”

Other key findings include that unrealised investment depreciation contributed to a drop in average ROE to 9.3 percent at H1 (H1 21: 13.9 percent). European solvency improved to 235 percent (H1 21: 222 percent), supported by rising risk-free interest rates and retained profits.

Shareholders’ equity reduced by an average of 22 percent in H1, driven by lower market values of bonds and equities held by global re/insurers. Consensus 2023 earnings per share (EPS) estimates were broadly flat following H1 results.