Global reinsurance capital up 8.4% claims Gallagher Re
New report from global broker says that sector rode out large natural catastrophe losses
Strong underwriting and investment performance by reinsurers in 2021, aided by continued rate improvement in nearly all primary insurance lines, drove total capital dedicated to the global reinsurance sector to $728bn at year-end, up 8.4% from December 31, 2020, according to the latest Reinsurance Market Report from Gallagher Re.
The 2021 performance brings the sector’s total capital growth since 2015 to 70%, or 6% per year. Going back to 2014, Gallagher Re said there is a clear trend of capital, or “supply”, growing faster than demand and this was again apparent in 2021.
Reinsurers’ weighted average reported combined ratio was 97.6%, a sharp improvement from the Covid-19-impacted 104.1% in 2020.
“While Covid-19 continued to impact daily lives last year, it barely registered in terms of reinsured losses due to prudent reserving undertaken by companies in the prior year,” said the Gallagher Re report. “The sector did absorb a heavy load of natural catastrophe losses, although these were no worse than the latest five-year average.”
Reinsurers’ underlying combined ratio, excluding prior year development and normalising for natural catastrophe losses, improved from 100.7% to 99.8%, the first time it has been sub-100% since 2014, said the report. It added that while inflation is ‘a growing concern’, to date, rate increases have outstripped claim trends. This drove down loss ratios and the strong premium growth also improved expense ratios.
Average return on equity (ROE) improved markedly, from 2.7% to 11.4% on a reported basis, and from 1.3% to 6.2% on an underlying basis. That said, the industry’s underlying ROE does not yet meet its cost of capital, which exceeded 8% in 2021.
“The 2021 result is good news for reinsurers and insurers alike,” said James Kent, global chief executive, Gallagher Re. “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.”