Strong investment markets drive H1 reinsurance capital growth

A total of $559 billion of capital was dedicated to the global reinsurance industry at the half-year point of 2019, according to Willis Re, revealing the findings of its latest Reinsurance Market Report.

This represented an 8 percent increase from a restated $518 billion at year-end 2018.

Willis Re said strong investment markets was the main driver of the industry’s capital growth, a reversal of the trend noted in the market report from the end of 2018. The largest component of reinsurance capital is the capital of the 36 reinsurance companies tracked in the Willis Reinsurance Index, which was up 11 percent to $440 billion, principally due to falling bond yields and rising equity markets.

Fresh capital backing the Convex start-up also contributed to the growth in the first half of the year.

Willis Re conducts a more in-depth analysis on those reinsurers within the index that make the relevant disclosure of natural catastrophe (nat cat) losses and prior year reserve releases. The reported return on equity (RoE) among these reinsurers jumped to 13.9 percent, from 8.5 percent at this point last year, driven by strong investment gains. Excluding investment gains, which had only a minor impact in the first half of 2018, the RoE was 7.3 percent.

Normalising for nat cat losses and removing the benefit from reserve releases results in an underlying RoE of 10.8 percent, or 4.2 percent excluding investment gains. This represented a small improvement on the figures at this stage in 2018, which were 3.9 percent underlying RoE and 3.3 percent excluding investment gains.

The subset’s combined ratio deteriorated from 93.3 percent in HY 2018 to 94.9 percent on a reported basis, which was entirely attributable to a lower pace of reserve releases and higher nat cat activity. Stripping out prior-year development and replacing actual nat cats with a normalised level, Willis Re put the underlying combined ratio at 100.5 percent - an improvement on HY 2018’s 101.5 percent.

James Kent, global CEO at Willis Re, said: “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.  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 realise these trends.”