Given recent rate increases and reinvestment rates, it is likely that global reinsurers’ underlying return on equity (ROE) will continue to trend upwards and remain meaningfully above the cost of capital, according to a recent Artex report.
Artex’s report noted that global reinsurers saw a significant improvement in underwriting profitability and ROE in 2023, which supported an increase in their capital base.
“Many companies reported some of the best reinsurance underwriting conditions in over two decades. The radical redistribution of risk between primary and secondary markets in property catastrophe and specialty segments has stimulated a greatly improved ROE story for reinsurers,” the firm observed.
As per Artex, global reinsurers’ underlying ROE was materially higher from 12% to 14.3% in 2023 due to a further reduction in underlying combined ratios and higher recurring investment income.
On an underlying basis, global reinsurers’ combined ratios continued their downward trend, from 98.5% to 96%, reportedly driven by a lower attritional loss ratio and normalised natural catastrophe load.
“Whether viewed on a headline or underlying basis, reinsurers’ ROEs now comfortably exceed the industry’s cost of capital,” Artex said.
The firm continued, “Given recent rate increases and reinvestment rates, it is likely that reinsurers’ underlying ROEs will continue to trend upwards and remain meaningfully above the cost of capital.”
Elsewhere in the report, Artex revealed that global reinsurance dedicated capital totalled $729 billion in 2023, a rise of 12% versus the restated full-year 2022 base.
The firm’s report said that growth was driven by both traditional reinsurance companies and non-life alternative capital.
Meanwhile, at the April 1 renewals, there was a continuation of reinsurance markets moving to “risk on” in the search for growth seen at the seminal January 1, 2024 renewal.
“This resulted in an increase of available capacity at the top end of programs and an incremental improvement in risk-adjusted pricing,” Artex said.
The firm added, “Moving forward, the combination of increased capacity coupled with increased appetite should lead to an easing of terms and conditions for clients.”
