Profits rise, but investment losses dent dedicated reinsurance capital: Gallagher Re

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Total, dedicated reinsurance capital fell by 11% to $647 billion as at the end of June 2022 on the back of investment losses, although the sector’s financial strength remains healthy, according to Gallagher Re’s latest reinsurance market report.

The reinsurance broker’s report finds that global dedicated capital fell by $82 billion from the end of 2021 as a result of $78 billion of realized and unrealized losses driven by the sell-off in fixed income and equity markets in H1 2022.

At the same time, global reinsurers achieved solid premium growth of 14% in the first half of 2022, with Gallagher Re highlighting the favorable pricing environment.

Together, reinsurers weighted average combined ratio ended the period at 93% compared with 94.1% in H1 2021, although the report notes that the accident year loss ratio, excluding nat cat losses and reserve developments, fell to 60.2% from 59.8% in H1 2021 .

The underlying combined ratio moved from 98.4% in H1 2021 to 99.7% in H1 2022, driven by a higher load of normalized cat losses.

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Investment losses also hit the reported return on equity of the reinsurers tracked by Gallagher Re, which fell to 0.4%. The underlying return on equity does continue to improve though, says the broker, rising from 6.3% in H1 2021 to 7.5% in H1 2022.

Gallagher Re notes that this is the best performance achieved since 2014, although it remains below the sector’s weighted average cost of capital.

Gallagher Re’s Global Chief Executive Officer (CEO), James Kent, commented: “Investment losses have hurt what was otherwise a more positive first half for reinsurers, and the steep headline decline in capital overstates the impact on economic capital positions. But the figures nevertheless show the need for continued vigilance given today’s macroeconomic and geopolitical uncertainties and the continuing debate over natural catastrophe exposures.”

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