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Premium growth during the first quarter saw an average increase of 11 percent, which was supported by continued favorable pricing for commercial insurance lines and reinsurance business, according to a report from Gallagher Re.

Underwriting results were strong, with re/insurers posting a combined ratio of 94 compared to 96 during Q1 2021, said the report titled “Global (re)insurers’ Q1 2022 financial results.” (A combined ratio below 100 indicates an underwriting profit.)

Nearly every company posted a sub-100 combined ratio, driven by favorable rate increases, net favorable development of prior accident year reserves and lower natural catastrophe losses compared to the first quarter last year (when winter storm Uri hit Texas), Gallagher Re indicated.

“Increases in economic inflation, and an expectation that this trend will continue, have created more uncertainty around ultimate losses that will be incurred to settle claims,” the report continued. “These factors, as well as the impact of the sustained low interest rate environment on net investment income, have driven the higher rates. Companies are achieving rate on rate increases in many cases for the fourth consecutive year.”

Gallagher Re noted that some management teams are carefully monitoring trends in pricing and claims inflation and will adjust premium growth where required to support profitability.

Other key findings from the report include:

  • While average premium growth was 11 percent, the strongest increases came from global reinsurers (+20 percent) and North American and Bermudan insurers and reinsurers (+13 percent).
  • One of the biggest challenges over the next three quarters is continued increases in social inflation due to its impact on loss costs and loss ratio trends, especially in the more liability exposed lines.
  • Although not a significant driver of overall Q1 results, some re/insurers established reserves for claims exposure relating to the war in Ukraine.
  • Declining equity markets contributed to a drop in the average return on equity to 9 percent (Q1 2021: 14 percent).
  • European solvency improved to 227 percent (Q1 2021: 220 percent), supported by rising risk-free interest rates and retained profits. “This level of sector solvency is at the upper end of guidance levels, which provides a strong base for capital returns,” the report said.
  • Despite the solid operating results, reported shareholders’ equity across the group of re/insurers saw significant declines, driven by the impact of higher interest rates causing a fall in the value of bond portfolios and equity holdings.
  • Consensus 2023 earnings per share estimates increased by 1.1 percent following Q1 results.
  • Gallagher Re tracks the biggest global re/insurers with meaningful commercial lines or reinsurance operations.

Source: Gallagher Re