Reinsurers’ profitability improved last year despite the ongoing pandemic and “a heavy load” of natural catastrophe losses, Gallagher Re says in a new report.

The weighted average combined operating ratio reduced to 97.6% from a covid-impacted 104.1% in 2020, assisted by prudent reserving and with catastrophe losses still within the five-year average.

The underlying combined operating ratio, excluding prior year development and normalising for catastrophe losses, improved from 100.7% to 99.8%, the first time it has been below 100% since 2014.

Gallagher Re Global CEO James Kent says last year’s results are good news for reinsurers and insurers.

“Reinsurers faced another year of significant natural catastrophe losses, yet still came out with a robust and improved performance across their overall portfolios,” he said. “Insurers in turn benefited from the strong capitalisation and resilient performance of the reinsurance sector.”

Gallagher Re says inflation is a growing concern, but to date rate increases have outstripped claim trends.

Average return on equity rebounded to 11.4% from 2.7% on a reported basis, but the underlying 6.2% return has not yet met the industry’s cost of capital, which exceeded 8% last year.

Total capital dedicated to the global reinsurance sector reached $US728 billion ($973 million) at year-end, an 8.4% increase compared to 12 months earlier.

Gallagher Re’s Reinsurance Market Report is released twice a year, with the latest analysis based on an index group of 44 companies.