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Survey Report

Willis Re Reinsurance Market Report April 2021: Results for full-year 2020

Property|Reinsurance|Securities
Climate Risk and Resilience|COVID 19 Coronavirus

April 12, 2021

Total capital dedicated to the global reinsurance industry measured USD 658 billion at year-end 2020 reflecting 7% year-on-year growth.

Key findings

Welcome to the 13th semi-annual publication of Willis Re’s Reinsurance market report which tracks the capital and profitability of the global reinsurance industry.

Global reinsurance dedicated capital totalled USD658b as of the end of 2020, with a growth rate of 7% over the restated 2019 base.1 Such a solid finish to 2020 would hardly have been expected earlier in the year, as the COVID pandemic was gathering pace.

Investment markets remained strong in the second half of the year, and that was a main driver of the improved reinsurance capital position. The much talked-about capital-raising – by both incumbents and new entrants – helped as well, even though capital returns to shareholders far exceeded the capital raised.

The 7% overall growth was powered by the INDEX2 companies, with alternative capital slipping slightly, from USD91b to USD90b.

Focusing on the INDEX companies, which contribute over 80% of the industry’s capital:

  • The INDEX companies achieved an 8% increase in capital.
  • The strong investment markets in 2020 powered this growth, with unrealised investment appreciation accounting for nearly 100% of the increase.
  • Despite regulatory restrictions on dividends and buy-backs, the INDEX companies still returned USD26b to their shareholders, more than their USD23b of net income, more than the USD24b returned in 2019, and larger than the USD10b of new capital raised. While many reinsurers are clearly seeking to take advantage of the market’s firming conditions, the ability to maintain healthy dividends is evidence of the industry’s robust capital position.

Drilling further into profitability, for the SUBSET of companies within the INDEX that provide the relevant disclosure:

  • Premium growth was a robust 9%, aided by a strengthening pricing environment.
  • The reported combined ratio deteriorated materially in 2020, from 100.6% to 104.1%, due entirely to the impact of COVID loss reserving. Reserve releases also provided less of a benefit, continuing the decreasing trends of the past five years.
  • On an underlying basis3, the combined ratio improved noticeably, from 103.1% to 100.7%. This is the first time since we began calculating this ratio in 2014 that it has improved on a full-year basis. Pricing improvements, both at the underlying primary insurance and reinsurance levels, are now being reflected. Reinsurers also benefitted to some extent from the lower claims frequency seen in several lines of business, and expense ratios have also improved.
  • The average ROE, whether measured on a reported or underlying basis, declined materially. The reported ROE fell from 9.7% to 2.7%, and underlying4 from 3.2% to 1.3%.
  • The underlying deterioration was due to declining investment yields more than offsetting the better underlying combined ratio.
  • It continues to be the case that underlying ROEs are tracking well below the industry’s cost of capital.

Footnotes

1 We have re-stated year-end 2019 capital from USD 604b to USD 615b, following our annual review of constituents.

2 INDEX relates to those companies listed within Appendix 2 of the report. SUBSET is defined as those companies that make the relevant disclosure in relation to nat cat losses and prior year reserve releases. Appendix 2 also identifies the SUBSET companies.

3 The underlying basis replaces actual nat cat and COVID losses with a normalized cat load and strips out prior year reserve movements.

4 This is the underlying ROE excluding investment gains.

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