Gallagher Re says funds deployment is a challenge for reinsurers as capital continues to grow faster than revenue.

Total reinsurance dedicated capital increased 5% in the first half of this year to a record $US688 billion ($962 billion), driven by continued growth in both traditional and alternative capital.

While the June half’s rise was slower than last year, Gallagher Re says trends suggest excess capital will have continued to build since.

As a result, reinsurance capital demand and supply dynamics have shifted further in favour of buyers, according to the reinsurance broker’s first-half market report.

The report says global reinsurers delivered another period of strong results, with a 19.9% return on equity as measured by the Gallagher Re Composite performance tracker. It was the second-highest half-year result in the past decade.

The half shows the reinsurance industry “remains in a position of exceptional financial strength”, Gallagher Re Global Strategic Advisory head of international Michael van Wegen says.

“However, the challenge facing the industry is increasingly becoming one of capital deployment rather than capital generation. Capital continues to grow faster than revenues, adding to an already significant supply and demand imbalance across many reinsurance markets.”

According to the broker, excess capital is material and growing.

“Continued excess capital build is also increasingly putting pressure on [returns on equity]. Therefore, redeployment of capital is a key theme for the industry.”