Global dedicated reinsurance capital fell 11% to $647 billion in the first half of this year, driven by significant unrealized investment losses, even as premium growth remained strong, according to a report released on Tuesday by Gallagher Re, Arthur J’s reinsurance business. Gallagher & Co.
Capacity tightened relative to demand, but not as markedly as the decline in capital suggests, and the underlying profitability of the reinsurance industry improved, Gallagher Re said in the report.
Reinsurers’ premiums grew 14% in the first half of the year, supported by ongoing price increases, and their reported total expense ratio was 93.0% versus 94.1% in the first half of 2021, Gallagher Re said in its analysis of a subset of 17 reinsurers.
However, the loss ratio for casualty years, excluding natural disasters and reserve development, deteriorated slightly to 60.2% from 59.8% in the same period last year, as interest rate increases failed to keep pace with increased loss costs, according to the report.
While still below 100%, the underlying total expense ratio deteriorated to 99.7%, compared to 98.4% at June 30, 2021, due to a higher load of normalized natural catastrophe losses, Gallagher Re said.
Investment losses also hit reinsurers’ reported return on equity in the first half of the year, which fell to 0.4%, but the sector’s underlying ROE improved to 7.5%, up from 6.3% in the first half of 2021.
This is still below the industry’s cost of capital but is the best underlying ROE measured since 2014, Gallagher Re said.
“Investment losses have hurt what was otherwise a more positive first half for reinsurers, and the sharp decline in capital overstates the impact on financial capital positions,” James Kent, global CEO of Gallagher Re, said in a statement.