Willis Re came up with an underlying RoE of 10.8% for its subset of tracked reinsurers at this year’s halfway point, normalising for natural catastrophe losses and removing the benefit from reserve releases, which further fell to 4.2% when excluding investment gains

Dedicated reinsurance capital reached $559bn at 2019’s half-way point, according to Willis Re’s latest Reinsurance Market Report. 

An 8% rise from $518bn at year’s end 2018 was attributed by the reinsurance broker primarily to strong investment markets.

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 $440bn, which the broker said was principally due to falling bond yields and rising equity markets.

The strong investment appreciation was a reversal of the year-end 2018 trend noted by Willis Re. Fresh capital backing the new Convex start-up (see page 12) also contributed to the H1 2019 capital growth, Willis Re noted.

Underlying RoE

To ascertain return on equity (RoE) figures, Willis Re conducted a more in-depth analysis on a subset of reinsurers within its index – those making relevant disclosures of natural catastrophe losses and prior year reserve releases.

The reported RoE for this subset jumped to 13.9% from 8.5% at the half-year point of 2018, driven by strong investment gains. Excluding investment gains, which Willis Re said had only a minor impact at last year’s mid-point, the RoE was some 7.3%.

Normalising for nat cat losses and removing the benefit from reserve releases, Willis Re came up with an underlying RoE of 10.8%, which fell to 4.2% when excluding investment gains.

This latter figure is a small improvement on the 3.9% underlying RoE at last year’s halfway point, or 3.3% excluding investment gains.

Reserve releases down

The subset’s combined ratio deteriorated to 94.9% from 93.3% at least year’s halfway point, on a reported basis.

This was entirely attributable to a lower pace of reserve releases and higher nat cat activity,” Willis Re noted.

Stripping out prior-year development and replacing actual nat cats with a normalized level, the reinsurance broker put the underlying combined ratio at 100.5% - still unprofitable but a slight improvement on 101.5% in mid-2018.

“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,” said James Kent, global CEO of Willis Re.

“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,” Kent added.