Global reinsurers performed well in the first half of 2021, according to a new report from Willis Re. Reinsurers expanded their capital base and posted strong headline underwriting results and ROEs. Underlying ROEs were less strong, but still noticeably improved, according to the report.
Total capital dedicated to the global reinsurance industry was $688 billion at the end of the first half, a 4% increase from its level as of December 31, 2020. The rise was driven primarily by strong net income, according to Willis Re. In order to fuel organic growth in the positive rating environment, reinsurers retained more income than has been typical in recent years.
Reinsurers achieved an exceptionally strong premium growth rate of 15% during the first half. Their weighted average reported combined ratio was 94.1%, which closely matches figures reported for the 2016 to 2019 half years, Willis Re reported. While there has been abnormally high natural catastrophe activity so far in 2021, the ratio is a dramatic improvement from the COVID-19-impacted 104.1% reading for H1 2020. Reported combined ratios also benefited from slightly higher levels of reserve releases, reversing a trend of declining releases since 2017.
Reinsurers underlying half-year combined ratio, excluding prior year development and normalising for natural catastrophe losses, has improved steadily since 2017, Willis Re reported. That improvement continued in the first half, falling from 98.6% in H1 2020 to 98.4%. A lower expense ratio helped drive the improved combined ratios, with rapid premium growth more than offsetting rising costs.
The average ROE experienced a strong rebound, driven by improved investment returns. The reported ROE bounced back from last year’s -0.7% to hit 13.9%, while the underlying ROE more than doubled to 6.3%. However, the underlying ROE still remains below the industry’s cost of capital, Willis Re said.
“Reinsurance providers will be heartened by these results,” said James Kent, global CEO of Willis Re. “The industry has endured several years of below-par performance, capped by the calamitous experience of COVID-19. Now the remedial work reinsurers have undertaken over the past several years is bearing fruit. Unfortunately, though, very strong premium growth in the first half of this year was achieved against combined ratios which are not much lower than during the softer parts of the cycle, therefore leaving underlying ROEs still languishing below the cost of capital.”