The dedicated capital of the global reinsurance industry increased 12% year-on-year to $729 billion in 2023, driven by improved profitability in the year, according to Gallagher Re’s latest Reinsurance Market Report.
This marks the highest level since the reinsurance broker began conducting its analysis of the size and performance of the reinsurance market ten years ago.
Capital for the INDEX companies, which contribute just over 82% of total reinsurance dedicated capital, was up 12% to $599bn.
As per Gallagher’s report, the $64bn rise in INDEX capital to $599bn was driven by a strong net income of $97bn and $54bn of unrealized investment appreciation, which reverses just over 60% of the unrealized investment depreciation reported in the full year 2022.
Meanwhile, non-life alternative capital rose by $11bn, or 11%, to $107bn, supported in particular by growth in catastrophe bonds which contributed approximately $6bn of the increase.
The key drivers were reportedly retained earnings resulting from reduced loss activity and higher collateral yields, net inflows, and mark-to-market gains.
Gallagher Re also observed that as well as increasing on an accounting basis, global reinsurers’ capital adequacy remains strong on an economic basis, a measure which it views as more relevant for management teams’ decision-making.
Despite reinsurance dedicated capital reaching a new peak in 2023, Gallagher Re’s report noted that capital growth over the past three years has been outpaced by premium growth as a result of both underlying demand and inflationary pressures.
As covered earlier today from information in the same report, the global reinsurance industry’s underlying ROE was above the cost of capital for the second consecutive year in 2023, improving to 14.3% from 12% in 2022, mainly due to lower combined ratios and higher running investment income.
Michael van Wegen, Head of Client and Market Insights (International), Global Strategic Advisory at Gallagher Re, commented, “Reinsurers’ ROEs now comfortably exceed the industry’s cost of capital.
“Taking into account exceptional 2023 profits, the industry has generated an ROE above the cost of capital for the 2017-2023 period cumulatively.”
The Gallagher Re Reinsurance Market Report is a biannual publication based on the
Reinsurance Market SUBSET group of companies, which for 2023 included 16 reinsurers
from across the globe.