Total capital dedicated to the global reinsurance industry reached US$559 billion at the half-year point of 2019, up 8% from US$518 billion at year-end 2018, driven by strong investment markets, according to Willis Re’s latest Reinsurance Market Report.
The largest component of the overall figure is the capital of the 36 reinsurance companies tracked in the Willis Reinsurance Index, which was up 11% to US$440 billion, principally due to falling bond yields and rising equity markets. This reversed trend was noted in the year-end 2018 Reinsurance Market Report, with fresh capital backing the Convex start-up contributing to the H1 2019 capital growth.
Willis Re also noted that reported RoE for the subset of reinsurers within the index which make the relevant disclosure of natural catastrophe losses and prior year reserve releases jumped to 13.9% from 8.5% at HY 2018, driven by strong investment gains. Excluding investment gains (which had only a minor impact in HY 2018), the RoE was 7.3%.
Normalizing for nat cat losses and removing the benefit from reserve releases results in an underlying RoE of 10.8%, or 4.2% excluding investment gains – a small improvement on HY 2018’s 3.9% underlying RoE, or 3.3% excluding investment gains, Willis Re said.
The subset’s combined ratio declined to 94.9%, from 93.3% in HY 2018, on a reported basis, due to a lower pace of reserve releases and higher nat cat activity. Stripping out prior-year development and replacing actual nat cats with a normalized level, the underlying combined ratio was placed at 100.5%, an improvement on HY 2018’s 101.5%.
“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,” said James Kent, global CEO at Willis Re. “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 realize these trends.”