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The Actuary The magazine of the Institute & Faculty of Actuaries

Global reinsurance capital rises 8%

Total capital dedicated to the global reinsurance industry has risen by 8% since the end of last year thanks to strong investment markets, data from Willis Re has revealed.

Reinsurance capital grows ©iStock
Reinsurance capital grows ©iStock

The figures show that capital in the reinsurance industry had reached $559bn (£452bn) at the halfway point of this year, compared with $518bn measured at the end of 2018.

The largest component of this was the capital from 36 reinsurance companies tracked by Willis Re, which was up 11% to $440bn amid falling bond yields and rising equity markets.

The recent strong investment appreciation was a reversal of the losses recorded last year.

"This improvement is supported by the positive trajectory seen in 2019 market pricing across many lines," said Willis Re's global CEO, James Kent.

“Looking behind the headline figures reveals a positive direction of travel for reinsurers, with modest but important reductions in non-catastrophe combined and expense ratios."

Willis Re also conducted an in-depth analysis on a subset of reinsurers that made disclosures of natural catastrophe (nat cat) losses and prior year reserve releases.

The return on equity (RoE) for this subset has jumped to 13.9%, compared with 8.5% at the halfway point of 2018. The RoE was 7.3% when excluding investment gains.

Normalising for nat cat losses and removing the benefit from reserve releases resulted in an underlying RoE of 10.8%, or 4.2% excluding investment gains.

The subset’s combined ratio deteriorated from 93.3% at the halfway point of 2018 to 94.9% on a reported basis thanks to a lower pace of reserve releases and higher nat cat activity.

Stripping out prior-year development and replacing actual nat cats with a normalised level, Willis Re put the underlying combined ratio at 100.5%, up from 101.5% at the midway point of last year.

Despite the increase in global reinsurance capital, Kent said that reinsurers should be wary of underlying patterns.

“The slowdown in reserve releases continues, so in the months and years ahead, reinsurers will need to further realise these trends,” he added.

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