Global reinsurance capital increases 15% in 2019

Capital dedicated to the global reinsurance industry totalled $605 billion at year-end 2019, according to Willis Re, representing year on year growth of 15 percent.

Growth was primarily driven by 2019’s strong investment market performance, Willis Re said, and was achieved despite a 3 percent contraction in alternative capital, according to its latest  Reinsurance Market Report.

It warned much of this expansion will now have unwound due to market volatility in March and April. The year-to-date impact to the global reinsurance capital base ranges from a reduction of between 5 percent and 20 percent, it said.

Willis Re conducts a more in-depth analysis on a subset of 18 reinsurers that provide more detailed information. Among this group the reported return on equity increased to 9.7 percent in 2019, from 4.2 percent in 2018, also driven by investment gains.

The underlying RoE, which excludes the impact of investment gains, abnormal catastrophe losses and prior-year reserve development, fell to 3.2 percent in 2019, from 4.3 percent in 2018.

This is driven by the group’s collective combined ratio, it said. The reported combined ratio increased to 100.6 percent, from 99.2 percent the previous year. Normalising catastrophe losses and excluding prior year reserve development pushed the ratio up to 103.1 percent, from 102.3 percent in 2018. “This metric has also been increasing every year going back to 2013,” Willis Re noted.

“The analysis shows that the reinsurance sector’s underlying RoE remains in gentle decline and is well below the industry’s cost of capital,” it warned.

James Kent, Willis Re’s global CEO, said the analysis underlines the reinsurance industry’s sensitivity to investment markets. “Thankfully strong capital growth in 2019 allied to judicious investment strategies by many companies has put the industry in a good position to weather the current volatile environment,” he said.

“At the same time, the analysis demonstrates that underlying profitability remains a core focus for reinsurers resulting in rate increases across many lines of business, to support the pricing momentum on loss impacted lines that started in some cases in mid-2018.”