2017 saw a mixed picture for the 34 reinsurance companies tracked in the Willis Reinsurance Index, according to the latest reinsurance market report from Willis Re.
The report said that whilst shareholders’ equity in the companies in the Index was up 7.8 percent to $371 billion at year-end 2017, this was despite catastrophe losses, which led to a weighted combined ratio for the tracked reinsurers of 104.8 percent, up 10.4 percentage points from the previous year.
Alternative capital also increased to $88 billion (year-end 2016: $75 billion), despite the draw-down of some catastrophe bonds and collateralized reinsurance and retrocession layers in the wake of the 2017 Atlantic hurricanes.
The rise in equity was driven by unrealized investment gains of $34.7 billion. However, when National Indemnity is excluded from the group, the total shareholders’ equity was roughly stable, at $343.7 billion.
The Index delivered return on equity of 3.4 percent, down from 8.0 percent in 2016, after aggregate net income fell to $12.0 billion (2016: $26.6 billion). Profitability was also heavily reliant on significant realised investment gains of $9.7 billion, up 38.6 percent, driven largely by a $2.7 billion investment gain realized by Fairfax following the sale of two subsidiaries and equity gains. Underwriting losses were again partly offset by high prior-year reserve releases. Notably, capital of $15.6 billion was returned by reinsurers through dividends ($11.2 billion) and share buybacks ($4.4 billion) far exceeding the aggregate net income of $12.0 billion.
Willis Re compared 2017 with the severe catastrophe-affected years of 2005 and 2011. The analysis of a subset of reinsurers shows that the reported combined ratio for 2017 was 107.4 percent compared with 108.2 percent in 2011 and 112.8 percent in 2005. The impact of natural catastrophe losses in 2017 was 18.1 percent lower than 2011 (24.8 percent) and 2005 (25.8 percent). Notably, excluding natural catastrophe losses and prior year reserve releases, the Ex-Cat Accident Year combined ratio deteriorated further to 94.6 percent in 2017, from 90.2 percent in 2011 and 89.2 percent in 2005.
“2017 was one of the worst years on record for insured natural catastrophe losses,” said James Kent, global chief executive officer, Willis Re. “However, today the global reinsurance market is able to deploy more capital than at the same time last year. When a few exceptional transactions are considered, total reinsurance capacity is roughly stable, despite the hurricanes, earthquakes, wildfires, and other events which brought misery to millions of people in 2017. That’s a significant achievement for the reinsurance market, and a testament to its strength.”
He continued: “Comparing the 2017 natural catastrophe experience with 2005 and 2011 shows that a number of large global property catastrophe reinsurance accounts were not impacted by the events of 2017. The primary market retained more of the losses from the year’s numerous catastrophe events under higher retentions. The Ex-Cat Accident Year comparison of only a 5 percent increase from 2005 may be viewed as surprising given the years of rate reductions in the past decade. The 2017 result was supported by the aforementioned reserve releases and investment gains which remains a concern and is why many reinsurers continue to try to push pricing on under-performing lines.
“The pressure on traditional reinsurers from alternative capital suppliers is stronger than ever, as many participants in this market cleared their first true major test. This increase in alternative capital, as well as the global reinsurance market having more capital to deploy, is continuing to dampen price increases in the mid-year renewals.”
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