Reinsurers rebuild: dedicated capital nearly recoups ‘22 market hit

Reinsurance capital has stacked up again after a hit to investment books in 2022, with total dedicated capital nearly back to end-2021 levels, reinsurance broker  Gallagher Re said after review of the H1 books.

H1 financial reports confirmed “a robust increase in their capital base and improved underwriting profitability and ROEs,” analysts claimed.

Gallagher Re cites global reinsurance dedicated capital up 13% during the first half to $709 billion.

The major traditional reinsurers - a set of 41 major players selected by Gallagher Re - are the only element of the capital puzzle still below end-2021 levels, albeit up 14% YTD to $581 billion.

Their gain comes chiefly on unrealised investment gains in the unwind from 2022 market madness, disproportionately large for the equity-heavy books of National Indemnity, analysts noted.

Profits at $22 billion, including the portion of the investment rebound put through the P&L, furthered the capital increase, although the group of core reinsurers put just over a third of the sum back to their shareholders in dividends and share buybacks.

New capital inflows accounted for a mere $7 billion less than 9% of the headline gain.

Amongst the core reinsurers tracked, capital accretion was nearly universal. Hannover Re erased its organic gain by paying off subordinated debt. RenaissanceRe and Everest Re stood out after SPOs, as did National Indemnity following the market impact on its equity-heavy investment portfolio.

Earnings look strong towards further capital accretion.

Underlying ROE at 13.4%, or 19.3% reported, proved well above a weighted average cost of capital still below the 10% mark.

It also suggests the industry could take 10 percentage points of excess hit to the combined ratio and still meet its cost of capital.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.