Alternative capital grew 6% in 2018: Willis Re

Total dedicated capital for reinsurance had dropped to $462 billion at year-end, representing a 5 percent drop overall, although this was partially offset by growth in the alternative capital space, according to Willis Re’s Reinsurance Market Report.

The total reinsurance capital is primarily made up of total shareholders’ equity of 32 reinsurance companies tracked in the Willis Reinsurance Index (WRI), which dropped 10 percent to $335.7 billion. In 2017, this figure grew 8 percent.

Alternative capital is the second largest component of the total dedicated capacity, and grew by 6 percent.

A reduction of $13.7 billion in index capital had been caused by the departures of Validus and XL Catlin via M&A deals, according to Willis Re. It said indexed companies paid out the majority of $20.5 billion of net income as dividends and buy-backs which further cut capital by $17.6 billion, equalling a pay-out ratio of 86 percent of net income.

Willis Re analysts suggested the overall decrease in index capital was caused by “unrealised investment depreciation of $21.4 billion”, with falling equity markets and rising bond yields cited as the main reason.

“Overall shareholders equity figures for the Index suffered a negative impact due to unrealised investment losses, owing to external factors largely beyond the control of risk carriers, as well as shareholder buy backs and dividends,” said James Kent, global CEO of Willis Re.

“The report’s findings show that the remedial actions taken by many risk carriers in 2018 were essential and we are seeing an acceleration of these actions in 2019 as companies seek improved underwriting terms and rates to drive RoEs.”