Global reinsurance dedicated capital totalled $647bn during the first half of the current year, down 11% from the restated 2021 base, with the reduction primarily driven by investment losses according to a new report by the global reinsurance division of Gallagher.
The report released in September 2022 provides in-depth analysis of the size and performance of the global reinsurance industry, based on the Gallagher Reinsurance Index group of companies.
The report found that although capital has reduced on an accounting basis, rating agency and regulatory measures of capital adequacy have been less impacted. The report said, however, the decline in equity could become an issue for companies’ ratings if there is any strain on liquidity that forces them to recognize significant losses.
Gallagher Re’s in-depth analysis of a subset of 17 reinsurers shows the reported combined ratio improved to 93.0% (HY 21: 94.1%), the lowest seen since 2015.
Despite this continued strong underwriting performance, the reported ROE reduced to 0.4% (HY 21: 13.9%), driven by an investment gains yield of -3.5% (HY 21: +1.7%) – itself driven by the sell-off in bond and equity markets in the first half of the year.
The underlying ROE nevertheless improved, from 6.3% in HY 21 to 7.5%. This still stands below the industry’s cost of capital but is the best underlying ROE we have measured since 2014.
The report focusses on the INDEX companies, which contribute over 80% of the industry’s capital. The salient observations of the report include:
INDEX capital reduced by 14%.
The main driver of this reduction was significant unrealized investment losses, almost half of which was attributable to National Indemnity.
Capital return through buybacks and dividends exceeded a modest contribution from net earnings.