Investment performance drives 7% growth in reinsurance capital in 2020: Willis Re

12-04-2021

Capital dedicated to the global reinsurance industry saw year on year growth of 7 percent in 2020, according to the latest Reinsurance Market Report from Willis Re, the reinsurance business of Willis Towers Watson.

There was $658 billion of capital dedicated to the global reinsurance industry at the end of 2020, Willis Re noted. While 2020 also saw new capital raised by both incumbents and new entrants, capital returns to shareholders exceeded those new investments, Willis Re added. 

Willis Re conducted its analysis of the results of 17 reinsurers, which reported an aggregate combined ratio of 104.1 percent in 2020, up from 100.6 percent in 2019. The increase was driven by COVID loss reserving, Willis Re said. 

On an underlying basis, by normalising COVID and natural catastrophe losses and excluding reserve releases, the combined ratio improved to 100.7 percent, Willis Re said, the first full-year improvement in the ratio since at least 2014.

However, reinsurers’ return on equity (ROE) remains a challenge, Willis Re admitted, with the group reporting a combined figure of 2.7 percent, down from 9.7 percent the previous year. The underlying ROE also fell to 1.3 percent from 3.2 percent. 

On both a reported and underlying basis, the ROE remained well below the industry’s cost of capital.

James Kent, global chief executive officer at Willis Re, said: “Such a solid development of the global reinsurance industry’s capital base would hardly have been expected earlier last year, as the COVID pandemic was gathering pace.  Willis Re’s analysis provides clear evidence of the strength and resilience of reinsurance market capacity.  Reinsurers and insurers alike must contend with the challenges of low interest rates.  But, looking through the turbulence of COVID and nat cat claims, and a declining reliance on reserve releases, there is a clear improving trend in underwriting profitability.”

 

Willis Re, James Kent, Willis Towers Watson

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