Premium growth in the first quarter of 2022 saw an average increase of 11%, supported by continued favorable prices for commercial insurance lines and reinsurance business, according to a report by Gallagher Re.
The underwriting results were strong, with reinsurers recording a combined rate of 94% compared to 96% in Q1 2021, according to the report entitled “Overall financial results of (re) insurers Q1 2022”. (A combined ratio below 100% indicates a subscription profit).
Almost every company recorded a combined rate below 100%, driven by favorable rate hikes, favorable net growth in previous year’s accident reserves and lower losses due to natural disasters compared to the first quarter of last year (when the storm Uri winter hit Texas), Gallagher Re indicated.
“Rising economic inflation and the expectation that this trend will continue have created more uncertainty about the final losses that will be incurred in settling claims,” the report continues.
“These factors, as well as the impact of the low interest rate environment on net investment income, have led to higher rates. Companies are making a rate hike in many cases for the fourth year in a row. ”
Gallagher Re noted that some management teams are closely monitoring price and damage inflation trends and will adjust premium increases where necessary to support profitability.
Other key findings
- While the average increase in premiums was 11%, the strongest increases came from global reinsurers (+ 20%) and from insurers and reinsurers in North America and Bermuda (+ 13%).
- One of the biggest challenges in the next three quarters is the continued rise in social inflation, due to its impact on loss costs and loss rate trends, especially in the more exposed lines of liability.
- Although not a significant determinant of overall first quarter results, some reinsurers have set aside reserves for exposure to war damage in Ukraine.
- The decline in equity markets contributed to a 9% decrease in the average return on equity (Q1 2021: 14%).
- European solvency improved to 227% (Q1 21: 220%), supported by higher risk-free interest rates and retained earnings. “This level of sector solvency is at the top of the guidance levels, which provides a solid basis for capital returns,” the report said.
- Despite solid operating results, equity reported at the reinsurance group level decreased significantly as a result of the impact of higher interest rates, which led to a decrease in the value of bond and equity portfolios.
- Consensus 2023 earnings per share (EPS) estimates increased by 1.1% after Q1 results.
Gallagher Re pursues the largest global reinsurers with significant business lines or reinsurance operations.
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