Total global reinsurance capital stood at US$658 billion at year-end 2020, reflecting 7% year-on-year growth, according to a report by Willis Re.

According to the international reinsurance brokerage’s Reinsurance Market Report, the increase was driven primarily by strong investment market appreciation. New capital raised both by incumbents and new entrants contributed to the total, but capital returns to shareholders played a larger part.

The report included an in-depth analysis of the results of a subset of 17 reinsurers. The subset’s reported combined ratio deteriorated from 100.6% in 2019 to 104.1% in 2020, due primarily to COVID-19 loss reserving.  However, on an underlying basis (i.e. normalising COVID-19 and natural catastrophe losses and excluding reserve releases), the combined ratio improved from 103.1% to 100.7%. Willis Re noted that this is the first full-year improvement in this ratio since at least 2014.

Despite this, return on equity (ROE) remains under pressure, with the subset’s reported ROE falling from 9.7% to 2.7%, with underlying ROE also falling from 3.2% to 1.3%. According to Willis Re, the deterioration in underlying ROE was due to declining investment yields more than offsetting the better underlying underwriting performance. On both reported and underlying bases, the ROE remained well below the industry’s cost of capital.

“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,” said James Kent, Willis Re global CEO.

“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.”