2021 market ‘robust’ despite losses, says Gallagher Re
Strong underwriting and investment performance by reinsurers in 2021, aided by continued rate improvement in nearly all primary insurance lines, drove total capital dedicated to the global reinsurance sector to $728 billion at year-end, which is up 8.4% from 31 December 2020, according to the latest Reinsurance Market Report from Gallagher Re.
The 2021 performance brings the sector’s total capital growth since 2015 to 70%, or 6% per year. Going back to 2014, there is a clear trend of capital, or ‘supply’, growing faster than demand and this was again apparent in 2021, the reinsurance broker said.
Reinsurers’ weighted average reported combined ratio was 97.6%, a sharp improvement from the COVID-19-impacted 104.1% in 2020. While COVID-19 continued to impact daily lives last year, it “barely registered”, Gallagher said, in terms of reinsured losses due to “prudent” reserving undertaken by companies in the prior year. The sector did absorb a heavy load of natural catastrophe losses, although these were no worse than the latest five-year average, it added.
Reinsurers’ underlying combined ratio, excluding prior year development and normalising for natural catastrophe losses, improved from 100.7% to 99.8%, the first time it has been sub-100% since 2014. While inflation is a growing concern, to date rate increases have outstripped claim trends. This drove down loss ratios and the strong premium growth also improved expense ratios, according to the report.
Average return on equity (RoE) improved, from 2.7% to 11.4% on a reported basis, and from 1.3% to 6.2% on an underlying basis, but the industry’s underlying RoE does not yet meet its cost of capital, which exceeded 8% in 2021.
“The 2021 result is good news for reinsurers and insurers alike,” James Kent, CEO of Gallagher Re, said. “Reinsurers faced another year of significant natural catastrophe losses, yet still came out with a robust and improved performance across their overall portfolios. Insurers in turn benefited from the strong capitalisation and resilient performance of the reinsurance sector.”
The Gallagher Re Reinsurance Market Report is a biannual publication providing in-depth analysis of the size and performance of the reinsurance market. Analysis is based on the Gallagher Reinsurance Index group of companies. In 2021 the Index includes 44 companies from across the globe.
The report can be downloaded here.
