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Global reinsurance returns beat cost of capital in 2022: Gallagher Re

It is the first time in 10 years the average underlying RoE surpassed the industry’s weighted average cost of capital

Improved return on equity was driven by better underwriting results and stronger investment income

The global reinsurance market saw its underlying return on equity (RoE) exceed the cost of capital for the first time in a decade, Gallagher Re has said.

The international broker said the sector’s average underlying RoE jumped to 11.2% in 2022, up from 6.3% the previous year, an improvement driven by better underwriting results and stronger investment income.

This was the first time in 10 years the average underlying RoE surpassed the industry’s weighted average cost of capital.

Average reported RoE declined from 11.4% to 6.8% because of a swing in investment gains, with 2021 seeing strong tailwinds and 2022 strong headwinds.

Gallagher added premium growth remained strong in 2022, at 12%, while the average underlying combined ratio improved by 0.9 percentage points to 98.8%.

The average reported combined ratio remained stable at 97.8%.

Total dedicated capital in the sector fell 12% on 2021 to $638bn, driving by a decline in the value of investments and a “conspicuous” absence of new capacity despite improved pricing and terms and conditions.

There was an overall decline in capital of 14%, but this was offset by a 2% growth in alternative capital.

Despite the reduction, Gallagher said solvency remained strong, and is generally increasing in the sector.

Brian Shea, global head of strategic and financial advisory at Gallagher Re, said it would be easy to misinterpret 2022.

“While capital, as measured on an accounting basis, and the average reported RoE both declined materially, economic measures of solvency remain strong, and reinsurers have achieved a strong improvement in underlying performance such that the underlying RoE has finally moved above the industry’s cost of capital,” he said.

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