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For the first time in a decade, reinsurers’ average underlying return on equity (ROE) exceeded the industry’s weighted average cost of capital (WACC), according to the latest Reinsurance Market Report by Gallagher Re.

The report found that the total capital dedicated to the global reinsurance sector sat at $638 billion by the end of 2022, indicating a 12% decline from the restated year-end 2021 capital of $725 billion.

The drop in capital was largely driven by the decline in the value of investments, Gallagher Re said in its report, as there was no new capacity despite tightened pricing and terms and conditions.

However, this US GAAP / IFRS accounting view of capital does not provide a complete picture of the situation, the report argued, noting that it masks how, in economic terms, solvency remained strong and actually increased during the year.

“Gallagher Re’s view is that economic views of capital are more relevant than pure unadjusted accounting measures and that they are more relevant for management decision-making at most (re)insurers,” the report said. “In our view, the global reinsurance industry’s capital position remains robust.”


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