Capital remains strong despite cat losses in H1 2016, RoE falls: Willis Re Market Report

Shareholders’ funds within the Willis Reinsurance (Willis Re) Index has increased to $338.3 billion in the first half of 2016, an increase of 2.6 percent from $329.7 billion last year, despite a more challenging catastrophic environment, Willis Re reports.

The latest Reinsurance Market Report by Willis Re shows that the net income for the Index remained robust at $14.5 billion and was offset by $10.6 billion of share buybacks and dividends.

Willis Re said that the figures suggest that while conditions continue to be difficult, reinsurers are consistently focused on maintaining their financial stability.

However, reinsurers are under consistent pressure from market pricing weakness that, when exacerbated by natural catastrophe losses, led to an upswing in the combined ratio for the Index.

John Cavanagh, global chief executive officer of Willis Re, said: “There is no doubt that market conditions remain challenging for reinsurers. As the latest Willis Reinsurance Market Report highlights, the industry’s return on equity continues to be flattered by strong support from prior year reserve releases.

“Despite this, the balance sheet strength of the market remains robust; reinsurers with significant balance sheet scale and breadth, and those which have reserved prudently will be best positioned to maintain profitability.”

The report highlights that ongoing market pressures are manifesting themselves in a diminishing underlying return on equity (RoE), the full effect of which continues to be minimised by prior year reserve releases; this underlying RoE reduced from 4.9 percent in the first half of 2015, compared with 4.5 percent in the first half of 2016.