Analysis by reinsurance brokerage Gallagher Re finds that, on average, reserve releases benefited reinsurance company combined ratios by 1.8% in 2023, a small increase on 2022’s 1.4%, which is far lower than 2014-2018 levels.
The contribution of reserve releases to the combined ratio has fluctuated around the 2% mark since 2019, says Gallagher Re. However, with inflationary pressures persisting, the broker does not expect any material uplift in the near-term.
Gallagher Re’s latest report on the reinsurance market’s performance in 2023, reveals that reserve releases increased by 49% in monetary terms in 2023, but the larger increase in pre-tax profit led to a decrease in the contribution of reserve releases to pre-tax profit, from 11% in 2022 to 6% in 2023.
As evidenced by companies full-year 2023 results, more companies had to strengthen reserves in 2023, with social inflation a continuing theme in the US as courts catch up on the backlog arising from the pandemic. Gallagher Re highlights notable reserve strengthening by Swiss Re, AXIS Capital, and Markel.
Gallagher Re’s analysis also shows that AXIS Capital and Markel’s adverse development was substantial enough to tip the overall combined ratio over the 100% mark.
Meanwhile, Swiss Re’s more moderate adverse reserve development, 1.3% of net earned premium, was driven by reserve additions in US liability attributed partially to favourable reserve developments in property and specialty lines.
“Several companies increased reserve levels in 2023 FY in response to inflation. These buffers could potentially be used to stabilize reserve releases in future periods,” says Gallagher Re.
