As per Gallagher Re’s biannual Reinsurance Market Report, the global reinsurance industry’s underlying ROE was above the cost of capital for the second consecutive year in 2023, improving to 14.3% from 12% in 2022, mainly due to lower combined ratios and higher running investment income.
Gallagher Re’s analysis, which for 2023 included 16 SUBSET reinsurers from across the globe, also found that the headline ROE increased to 20% from 7% a year ago, the highest level in the past decade.
Michael van Wegen, Head of Client and Market Insights (International), Global Strategic Advisory at Gallagher Re, commented, “Reinsurers’ ROEs now comfortably exceed the industry’s cost of capital.
“Taking into account exceptional 2023 profits, the industry has generated an ROE above the cost of capital for the 2017-2023 period cumulatively.”
Gallagher Re’s report noted that the combined ratio of this group improved by 5.7 percentage points to 88.9% in 2023, driven by a decrease in natural catastrophe losses, a better accident year loss ratio excluding natural catastrophes, and a slight increase in the effect of reserve releases. However, the firm did add that there was a slight increase in the expense ratio.
Meanwhile, the reinsurers reportedly had a better experience with natural catastrophes compared to overall insured losses, which Gallagher Re estimates to be $123bn in 2023.
“In the last three years, SUBSET companies have carried a smaller proportion of these losses, due to higher attachment points and the nature of the 2023 catastrophe losses, which were mainly secondary perils rather than landfalling US hurricanes,” the firm explained.
The reinsurance broker’s report also said that the underlying combined ratio improved to 96.0%, the lowest since 2014, due to lower attritional losses and normalized natural catastrophes.
van Wegen continued, “The improved underwriting performance and ROE strengthen the reinsurance industry’s resilience and enable reinsurers to better absorb potential earnings volatility from, for example, natural catastrophe losses.”
