Global reinsurance dedicated capital totalled $US805 billion ($1.23 trillion) at the half-year mark, up 4.8% from the end of December, a Gallagher Re report says.

Traditional reinsurance capital increased 5% and non-life alternative capital 3.6%, with profitability supported by strong combined operating ratios and investment returns.

Gallagher Re expects traditional capital to increase about 8% this year, up from its previous projection of at least 6%, reflecting strong financial markets and foreign exchange moves.

Reinsurers are well positioned to maintain strong profitability and the industry has “more than recouped” on the weaker 2017-20 years, it says.

Gallagher Re expects a headline 17%-18% return on equity, at least in line with last year and significantly above the cost of capital, assuming a normalised level of catastrophe losses for the rest of the year. 

For a subset of 16 companies, revenue growth eased in the first half to 3.1%, the slowest pace since 2017, as reinsurers – except in US casualty – encountered pricing pressures.

“US casualty continued to be the outlier, with companies having differing views on whether to grow or pull back, as underlying rates improved,” the report says.

The revenue slowdown and a retained earnings boost to shareholder equity is starting to put some pressure on returns on equity, Gallagher Re notes. 

The reported combined operating ratio increased to 87.5% in the half, compared with 84.6% in the previous corresponding period, driven by a 4.4-point deterioration in the natural catastrophe loss ratio and a weaker expense ratio, partly offset by reserve releases.

The natural catastrophe impact on the combined operating ratio was 9.6%, slightly above normalised levels and unusually high for a first half due to the California wildfires.

The subset companies had an estimated 15% share of the wildfire losses but an average 2% share of other event losses, reflecting moves since January 2023 to reduce exposure to small and mid-sized perils.

Gallagher Re previously estimated global natural catastrophe losses in the first half at $US84 billion ($128.8 billion) – the highest level for the period since 2011 and 55% above the decade average.

Munich Re, commenting as the industry meets at the annual Reinsurance Rendezvous in Monte Carlo, says increasing risks and high demand characterise the market.

“For the January renewals, we continue to expect a market environment that offers attractive business opportunities,” board of management member Thomas Blunch said. “Overall, there should be a good balance between the capacity on offer and the continued increase in demand.”