Global specialty (re)insurance returns in review: investor appetite surged in 2023

Annual returns for the RISX equity index of listed companies with Lloyd’s businesses remained strong in 2023, and with lower correlation, according to ICMR’s Markus Gesmann and Quentin Moore.

As a sector, global specialty (re)insurance registered a favourable return last year, particularly when compared against the basket of broader investment market sectors.

The above chart shows the share price gain (or loss) over 2023 for the main sectors along with global specialty (re)insurance, as measured by the ICMR RISX index– an equity index based on the listed companies that own businesses in the Lloyd’s market and which is weighted by premium, not market capitalisation.

This weighting gives the index a risk profile which aligns as closely as possible to the Lloyd’s market itself. In this way, it provides a benchmark for investments within Lloyd’s.

It is interesting to note the favourable performance when compared against the wider financial sector, which includes banking, asset management, private equity and broader insurance.

Reviewing the index composition in a little more detail shows the reward versus the risk underlying each sector.

Whilst global specialty (re)insurance may only have generated the fourth-largest mean return in 2023, it did so with a much lower risk (defined as the annualised risk from the daily volatility of capital markets pricing).

This won't tell us much about the underlying insurance and reinsurance risks being underwritten, but it does ilustrate capital markets’ confidence in the sector.

Despite the uncertainties facing the world during 2023 and into 2024, confidence in consistent returns from the sector appears steady.

This is again reinforced by the sector, as proxied by the RISX index data, having the lowest maximum drawdown of any of these sectors in 2023, which occurred around the collapse of Silicon Valley Bank and Credit Suisse in March of last year:

This would suggest that capital markets are perhaps starting to price in some of the underlying rate improvements sustained over the last few years, as well as the impact of higher risk-free rates on the asset leverage specialty (re)insurers enjoy on their balance sheets.

And this should augur well for any IPOs planned over the coming quarters.

About the authors…

A co-founder of ICMR, Markus has spent 20 years in both insurance and capital markets. He is the former head of analysis at Lloyd’s, where he set up a market wide analytical performance and price monitoring framework. Markus was head of pricing at an ILS joint venture with Lehman Brothers and Vario Partners, structuring innovative risk transfer solutions into capital markets. Markus is an expert in modelling non-life insurance portfolios and probabilistic programming, and an Honorary Visiting Fellow at Bayes Business School, City, University of London.

A co-founder of ICMR, Quentin has over 30 years Lloyd’s and capital markets experience, including directorships of managing agencies and head of research at Lloyd’s where he co-authored Lloyd’s Performance Management template in the aftermath of Lloyd’s WTC losses of 2001, helping implement Lloyd’s capital modelling and risk management. Quentin co-founded an ILS joint venture with Lehman Brothers as well as co-founding Bermuda-based ILS firm, Vario Partners. He has worked in insurance private equity, in investment banking and in actuarial consulting.