According to global reinsurance broker Gallagher Re, reinsurers’ weighted average reported combined ratio was 97.6% in 2021, a sharp improvement from the COVID-19-impacted 104.1% for the year prior.
On an underlying basis, so excluding prior year development and normalising for natural catastrophe losses, reinsurers’ combined ratio improved from 100.7% to 99.8% in 2021, the first time it has been sub-100% since 2014, according to Gallagher Re’s latest reinsurance market report.
While some carriers still reported an unprofitable underwriting return in 2021, across the cohort tracked by Gallagher Re in its report, overall, it was a more profitable year for the sector when compared with 2020.
While inflation is a growing concern, to date rate increases have outstripped claim trends, which Gallagher Re says pushed down loss ratios as the strong premium growth improved expense ratios.
Strong underwriting and investment performance by reinsurers last year was aided by continued rate improvement in nearly all primary lines, driving a rise in total capital dedicated to the global reinsurance sector.
Gallagher Re’s latest reinsurance market report finds that, total, dedicated reinsurance capital increased to $728 billion at the end of 2021, up 8.4% from 31st December, 2020.
The reinsurance broker reports that the market’s 2021 performance brings the sector’s total capital growth since 2015 to 70%, or 6% per year.
The trend of supply outstripping demand has been evident since 2014, and Gallagher Re says that this was again apparent in 2021.
On COVID-19, the report notes that although it continued to impact daily lives in 2021, in terms of reinsured losses, the pandemic “barely registered” owing to prudent reserving undertaken by companies in the prior year.
Also in 2021, the reinsurance sector absorbed a heavy load of natural catastrophe losses, although Gallagher Re finds that these were no worse than the latest five-year average.
At the same time, average return on equity improved markedly, from 2.7% to 11.4% on a reported basis, and from 1.3% to 6.2% on an underlying basis.
However, the report argues that the industry’s underlying RoE does not yet meet its cost of capital, which exceeded 8% in 2021, as shown in the chart below.
James Kent, Global CEO, 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.”
