A new Best’s Special Report from ratings agency, AM Best shows that global reinsurance companies represented in the firm’s global reinsurance composite enjoyed a 22 per cent return on equity (ROE) in 2023, a five year high they say was driven primarily by a turnaround in unrealized losses from the previous year and strong underwriting performance. 

Entitled Significant Increase in Global Reinsurers’ ROE Due to Investment and Underwriting Results, the report adds that in 2024, a significant proportion of insured losses from hurricanes Milton and Helen are likely to be transferred to the global reinsurance market. “However, stricter reinsurance terms and conditions, which led to higher attachment points, should also help make reinsurers’ losses manageable.” 

Hurricanes Helene and Milton 

The firm’s senior financial analyst, Guilherme Monteiro Simoes adds that fourth quarter 2024 results will be negatively affected, but full-year earnings should remain favourable. “Further reinsurance market hardening is unlikely,” he says, “but Helene and Milton will probably stall any softening of the market cycle.” 

In the report itself, researchers say the considerable ROE improvement was due to net investment income, underwriting gains and unrealized capital gains. These, they say, pushed ROEs well above the cost of equity capital. “Net investment income remains a key way to increase surplus and compound returns on equity capital, as underwriting margins tend to be relatively low on average.” 

With premiums continuing to move up, interest rates remaining high and capital markets performing well in 2023, the composite recorded its highest ROE in five years. 

“Retained earnings were bolstered by strong underwriting and favourable net investment income. Unrealized capital gains, muted dividends and share buybacks also propelled increased in surplus, strengthening balance sheets,” they write. “Secondary natural catastrophe events were the norm in 2023, but reinsurers adjusted their policies to move away from lower layers close to the primary peril, posting the lowest combined and operating ratios in five years.”