The global reinsurance industry is in a strong position and has ample buffers to absorb potential headwinds in the second half of 2024, according to the Artex Risk Solutions’ report, The Alternative View.
The market has reported strong results for the first half of 2024, with increased capital, improved underwriting profitability, and exceptional returns on equity (ROE).
Dedicated capital reached $766 billion, a 5.4% increase from the end of 2023, fuelled by growth in both traditional and alternative capital sources.
A key indicator of financial health, the combined ratio, showed significant improvement as it dropped to 84.5% from 87.0% in the same period last year. This marks the strongest combined ratio since Gallagher Re began its reporting in 2014.
The report attributed the combined ratio improvement to several factors, including a decline in the proportion of natural catastrophe losses covered by reinsurers – which fell to 5.8% from 7.7% – and improved underlying underwriting performance.
The underlying combined ratio also continued to improve to 93.6% in H1 2024 from the 96.1% reported for the same period the year prior.
Artex report also noted a boost in ROE, reaching 19.6% as of the end of July 2024, driven by strong underwriting results and higher investment income and higher running investment yields.
“Whether viewed on a headline or underlying basis, reinsurers’ ROEs continue to comfortably exceed the industry’s cost of capital,” analysts stated.
This puts the industry in a good position to absorb earnings volatility during the latter part of 2024, Artex highlighted, including losses from Hurricanes Helene and Milton in the second half of the year.
While claims from Hurricanes Helene and Milton are estimated to cost the industry between $35 billion and $55 billion, the current capital levels provide a significant buffer, the report noted.
Despite the positive outlook, the analysts also highlighted potential challenges.
Artex concluded: “A decline in interest rates could lead to a reduction in running yields again over time.
“However, long-term interest rates would need to decline by more than 2 points from current levels for the underlying ROE over time to reduce to levels in line with the weighted average cost of capital, all else being equal.”
