Artex Capital Solutions reports that global reinsurers experienced a notable improvement in underwriting profitability and return on equity (ROE) in 2023, contributing to an increase in their capital base.
Many companies reported some of the best reinsurance underwriting conditions in over two decades. The redistribution of risk between primary and secondary markets in property catastrophe and specialty segments has driven a substantial improvement in ROEs for reinsurers.
Underlying ROEs rose significantly, ranging from 12% to 14.3% for the year. This increase was due to a reduction in the underlying combined ratios and higher recurring investment income. The underlying combined ratio continued its downward trend, decreasing from 98.5% to 96%, driven by a lower attritional loss ratio and a normalized natural catastrophe load.
Artex notes that 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 significantly above the cost of capital.
Global reinsurance dedicated capital totaled $729 billion at the end of 2023, an increase of 12% compared to the restated full-year 2022 base. This growth was driven by both traditional reinsurance companies and non-life alternative capital.
At the April 1 renewals, the reinsurance market continued its “risk on” approach seen at the January 1, 2024, renewal. This resulted in increased capacity at the top end of programs and an incremental improvement in risk-adjusted pricing.
Artex highlights that the combination of increased capacity and a heightened appetite for risk should lead to an easing of terms and conditions for clients.
Kathleen Faries (pictured above), CEO of Artex Capital Solutions, observed a significant shift in risk appetite around secondary perils and frequency loss perils in 2023 and into 2024.
“A tightening of terms and conditions and higher attachment points meant insurers were holding significantly more of this exposure on their own balance sheet,” Faries explained.
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