Global Reinsurance Sector Report

Oleg Parashchak
Forinsurer
Published in
5 min readApr 17, 2024

Global reinsurance groups reported a significant improvement in underwriting profitability and ROEs in 2023, which supported an increase in their capital base to the highest level, according to Gallagher Re’s Reinsurance Market Report for full-year 2023.

Underlying ROEs were materially higher due to a further reduction in underlying combined ratios and higher recurring investment income. Whether viewed on a headline or underlying basis, reinsurers’ ROEs now comfortably exceed the industry’s cost of capital.

Given recent rate increases and reinvestment rates, it is likely that reinsurers’ underlying ROEs will continue to trend upwards and remain meaningfully above the cost of capital.

Global reinsurance dedicated capital totalled USD729 billion at full-year 2023, a rise of 12% versus the restated full year 2022 base. Growth was driven by both the INDEX3 companies and non-life alternative capital.

  • INDEX capital was up 12% to USD599B driven principally by higher net income. This was also supported by unrealized investment appreciation, just over three quarters of which was attributable to National Indemnity whose significant US equity holdings rose in value during the year.
  • The global reinsurance industry’s capital position remains strong on an economic basis, which Gallagher Re views as the measure most relevant for management teams’ decision making. Average solvency for the top four European reinsurers was 261%, up from 255% at 2022 FY (see 2024 Global Reinsurance Rate for Property). Moreover, capital growth, or ‘supply’, in 2023 outpaced two measures of demand.

Reinsurance dedicated capital rises

The reported combined ratio reduced 5.7 percentage points (ppts) to 88.9% in 2023 FY (2022 FY: 94.6%, restated for IFRS 17), despite a moderate increase in the expense ratio, thanks to a lower impact from natural catastrophes (-3.5ppts), a 2.0 ppts reduction in the current-year attritional loss ratio and slightly increasing reserve releases. The favorable impact from discounting remained stable (see how Fitch Ratings Revised Global Reinsurance Sector Forecasts).

SUBSET companies have carried a reduced proportion of these losses over the last three years, from 9.2% in 2021 FY, to 8.0% in 2022 FY and 7.3% in 2023 FY. This reflects higher attachment points and the nature of 2023 catastrophe losses which were dominated by so-called “secondary” perils rather than by landfalling US hurricanes.

On an underlying basis, the combined ratio continued its downward trend, from 98.5% to 96.0%. This is the strongest level achieved since the launch of the Reinsurance Market Report in 2014 and was primarily driven by a lower current-year attritional loss ratio and normalized natural catastrophe load.

A number of companies have indicated extra conservatism in their current-year loss picks, which suggests that true underlying profitability could be even better.

Reported and underlying ROEs

The reported ROE rose strongly in 2023 FY, from 7.1% to 20.2%, largely spurred by a higher investment gains yield and a lower impact from natural catastrophes. Following exceptionally strong profitability in 2023, the SUBSET group has now fully recouped for weaker profit years such as 2017–2020.

Underlying ROE was up materially, from 12% in 2022 FY to 14.3% in 2023 FY.

Underlying underwriting margins and running investment income notably rose and so following an elongated period of sub-par returns, underlying ROE continues to exceed the cost of capital for the second consecutive year.

Reported and underlying combined ratios reduced markedly

Reported combined ratio

Combined ratio lower, driven by reduction in both natural catastrophe and attritional losses.

IFRS 17 impact

Fixed ceding commissions are no longer recognized within expenses, resulting in a significant reduction in the expense ratio for reinsurers.

The other implication from this is that the natural catastrophe loss ratio increases, due to the use of net insurance revenue instead of net earned premiums in the denominator.

In addition, expenses that are not directly attributable to insurance activities are stripped out of the insurance service result (IFRS 17’s underwriting profit), meaning that expense ratios are materially lower.

The discount rate is unwound in subsequent years, but outside of the underwriting profit. As a result, as interest rates have risen sharply since 2022, companies are currently benefitting from a significant boost to profit.

In order to ensure like-for-like comparison across time and reporting standards, we have addressed the IFRS 17 challenge directly, reflecting the new disclosures and adapting the Reinsurance Market Report to the new standard.

2022 FY data has been restated throughout the report to reflect the impact of IFRS 17. Equally, our underlying ROE and combined ratio metrics have been updated to neutralize the effect of discounting, while the normalized nat cat loss ratio has been adjusted to neutralize the effect of different accounting standards.

Expense ratio impacted by IFRS 17

Expense ratio impacted by IFRS 17 and grew marginally for the first time since 2016.

Total Reinsurance dedicated capital

Reinsurance dedicated capital rises, surpassing the previous highpoint of 2021.

Although reinsurance dedicated capital reached a new peak in 2023, capital growth over the past three years (+8%) has been outpaced by premium growth (+18%) as a result of both underlying demand and inflationary pressures.

Capital for the INDEX companies, which contribute just over 82% of total reinsurance dedicated capital, was up 12% to USD599B.

Non-life alternative capital rose by USD11B, or 11%, to USD107B, supported in particular by growth in catastrophe bonds which contributed approximately USD6B of the increase.

The key drivers were retained earnings resulting from reduced loss activity and higher collateral yields, net inflows and mark-to-market gains. Collateralized reinsurance continues to reduce on a relative share basis, in line with developments seen in 2022.

As well as increasing on an accounting basis, global reinsurers’ capital adequacy remains strong on an economic basis, the measure which Gallagher Re views as more relevant for management teams’ decision making.

Average solvency for the top four European reinsurers was 261%, up from 255% at 2022 FY, which is at the upper end of, and in most cases above, management target levels.

The USD64B rise in INDEX capital to USD599B was driven by strong net income of USD97B and USD54B of unrealized investment appreciation, which

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Oleg Parashchak
Forinsurer

CEO & Founder – Beinsure.com and Forinsurer.com → Digital Media: Insurance | Reinsurance | InsurTech | Blockchain | Crypto