Global Reinsurance Market Sees 12% Growth in 2023
In 2023, the global reinsurance market experienced a remarkable 12% increase in capacity, reaching $729 billion, as reported by Gallagher Re. This growth was primarily driven by a significant improvement in profitability, with the return on equity (ROE) soaring to 20.2%, the highest level in a decade.
John Weber of AM Best TV recently interviewed Michael van Wegen, head of international client and market insights at Gallagher Re, to delve deeper into the factors behind this growth.
Van Wegen pointed out that the rise in dedicated capital in the global reinsurance market was fueled by both traditional and alternative sources. Traditional capital, the predominant contributor, saw growth mainly due to strong net income and a 20% ROE in the year. The recovery in financial markets also played a role in reversing unrealized gains and losses on investment portfolios. However, the influx of new capital in the traditional market was limited, totaling just $2 billion in 2023.
Impressive Underlying ROE and Industry Resilience
The underlying ROE in 2023 increased to 14.3%, up from 12.0% in 2022, remaining above the cost of capital for the second consecutive year. This improvement was attributed to enhanced underwriting margins and increased running investment income. Underwriting margins contributed significantly, tripling to 2.8%, while running investment income rose to 10.4 percentage points, reflecting higher reinvestment returns amidst globally rising interest rates.
Van Wegen emphasized the industry’s improved profitability, enabling it to better withstand potential volatility, such as natural catastrophe losses. He highlighted the decline in the impact of natural catastrophes on the combined ratio for reinsurance, which dropped to 6.7 percentage points in 2023 from 10.3 percentage points in 2022. Despite insured losses exceeding $100 billion for the fourth consecutive year, reinsurers’ share of these losses decreased, indicating adjustments in attachment points and terms and conditions since the January 2023 renewals.
Future Outlook and Potential for Improved ROE
Van Wegen pointed out the industry’s strong performance in achieving a 20% ROE in 2023, marking the best year in the past decade. He anticipates potential upward pressure on the underlying ROE due to current interest rate levels and recent rate increases, with a possible improvement of two to five percentage points over time. However, the overall outlook remains uncertain, dependent on natural catastrophe activity and financial market developments in the upcoming months.
In conclusion, the global reinsurance market’s significant growth and improved profitability in 2023 demonstrate the industry’s resilience and potential for continued expansion in the future. Share your thoughts on these developments in the comments below.
