Shareholders' equity in 34 reinsurance companies tracked in the Willis Reinsurance Index was up by 7.8% to US$371 billion at end-2017. The increase occurred despite catastrophe losses, which led to a weighted combined ratio for the tracked reinsurers of 104.8%, 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 collateralised reinsurance and retrocession layers in the wake of the 2017 Atlantic hurricanes.
These are some of the findings of the latest Reinsurance Market Report from Willis Re, the reinsurance business of leading global advisory, broking and solutions company Willis Towers Watson.
The rise in equity was driven by unrealised 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%, down from 8.0% 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%, driven largely by a $2.7 billion investment gain realised 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.
In a new combined ratio analysis, 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% compared with 108.2% in 2011 and 112.8% in 2005. The impact of natural catastrophe losses in 2017 was 18.1% lower than 2011 (24.8%) and 2005 (25.8%).
Notably, excluding natural catastrophe losses and prior year reserve releases, the Ex-Cat Accident Year combined ratio deteriorated further to 94.6% in 2017, from 90.2% in 2011 and 89.2% in 2005.
Mr James Kent, Global CEO, Willis Re, said, “2017 was one of the worst years on record for insured natural catastrophe losses. 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 added, ”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 ExCat Accident Year comparison of only a 5pt 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 underperforming 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.”
The 34 reinsurers tracked in the Willis Reinsurance Index are:
- African Re
- Arch Capital
- Asia Capital Re
- Axis Capital
- CCR, France
- China Re
- Everest Re
- General Reinsurance
- GIC India
- Hannover Re
- IRB Brazil
- Korean Re
- Munich Re
- National Indemnity
- Partner Re
- RGA Re
- Swiss Re
- Toa Re
- WR Berkley
- XL Catlin