Total capital dedicated to the global reinsurance industry measured USD 559 billion at the half-year point of 2019. This is an 8% increase from a re-stated USD 518 billion at year-end 2018[1], with strong investment markets being the main driver of the industry’s capital growth. These are findings from the latest Reinsurance Market Report from Willis Re, the reinsurance business of leading global advisory, broking and solutions company Willis Towers Watson (NASDAQ: WLTW).
The largest component of this figure is the capital of the 36 reinsurance companies tracked in the Willis Reinsurance Index, which was up 11% to USD 440 billion, principally due to falling bond yields and rising equity markets. The strong investment appreciation was a reversal of the trend noted in the year-end 2018 Reinsurance Market Report. Fresh capital backing the Convex start-up also contributed to the H1 2019 capital growth.
Willis Re conducts a more in-depth analysis on a subset of reinsurers within the Index which make the relevant disclosure of natural catastrophe (nat cat) losses and prior year reserve releases. The reported Return on Equity (RoE) for this subset jumped to 13.9% from 8.5% at HY 2018, driven by strong investment gains. Excluding investment gains which had only a minor impact in HY 2018, the RoE was 7.3%.
Normalizing for nat cat losses and removing the benefit from reserve releases results in an underlying RoE of 10.8%, or 4.2% excluding investment gains. This latter figure is a small improvement on HY 2018’s 3.9% underlying RoE, or 3.3% excluding investment gains.[2]
The subset’s combined ratio deteriorated from 93.3% in HY 2018 to 94.9% on a reported basis. This was entirely attributable to a lower pace of reserve releases and higher nat cat activity. Stripping out prior-year development and replacing actual nat cats with a normalized level, we put the underlying combined ratio at 100.5% – an improvement on HY 2018’s 101.5%.
James Kent, Global CEO, Willis Re, said: “Looking behind the headline figures reveals a positive direction of travel for reinsurers so far this year, with modest but important reductions in non-catastrophe combined and expense ratios. This improvement is supported by the positive trajectory seen in 2019 market pricing across many lines. The slowdown in reserve releases continues, however, so in the months and years ahead reinsurers will need to further realize these trends.”