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Willis Re Reinsurance Market Report: Results for half-year 2019

Total reinsurance dedicated capital increases 8%

Reinsurance
Insurer Solutions

September 4, 2019

Global reinsurance dedicated capital totaled USD 559 billion at half-year 2019. This is a robust 8% increase from a re-stated USD 518 billion at year-end 2018 according to Willis Re’s Reinsurance Market Report.

Key findings

Welcome to the 10th 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 USD 559 billion at half-year 2019. This is a robust 8% increase from a re-stated USD 518 billion at year-end 2018, which allows for a change in consituents and a broader definition of capital(1), with strong investment markets being the main driver of the industry’s capital growth.

Focusing on the INDEX(2) companies, which contribute the largest component of the industry’s capital:

  • INDEX companies’ capital grew 11% to USD 440 billion (FY 2018 re-stated: USD 396 billion). This was principally due to falling bond yields and rising equity markets leading to strong investment appreciation, a reversal of the trend which we noted in our year-end 2018 report.
  • Net income of USD 17.7 billion, which benefited from the strong investment markets, added 4% to re-stated opening capital. The trend of active capital management continued with USD 10.9 billion returned to shareholders, accounting for approximately 62% of net income (HY 2018: 11.1 billion, 77%).
  • Unrealised investment appreciation above and beyond that included within net income provided a further USD 32.6 billion of support to INDEX capital, and accounted for 8 percentage points of capital growth. Over one half of this amount was generated by National Indemnity.
  • Fresh capital backing the Convex start-up also contributed to the H1 capital growth.

Drilling further into profitability, for the SUBSET(3) of companies within the INDEX that provide the relevant disclosure:

  • The reported combined ratio deteriorated from 93.3% in HY 2018 to 94.9%. This was entirely attributable to a lower pace of reserve releases and higher nat cat activity versus HY 2018.
  • Reserve releases benefitted the SUBSET’s combined ratio by only 1.2 percentage points, versus a pace of 3-5% in previous half-years, with the deceleration due largely to deterioration in 2017 and 2018 loss estimates, particularly in relation to Typhoon Jebi.
  • Stripping out prior-year development and replacing actual nat cats with a normalised level, we put the underlying combined ratio at 100.5%.(4) This is an improvement on HY 2018’s 101.5%, and the first notable improvement in underlying terms that we have seen since our first half-year publication in 2014.
  • The reported RoE improved dramatically to 13.9% in the first half (HY 2018: 8.5%), driven by strong investment gains. Excluding investment gains, which had an only minor impact in HY 2018, the HY 2019 RoE was 7.3% - ie slightly down on HY 2018 and consistent with the deterioration in the reported combined ratio.
  • Normalising 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. This latter figure is a small improvement on HY 2018’s 3.9% underlying RoE, or 3.3% excluding investment gains.(5)
  • Strong investment gains were also manifest in the investment yield. This was 4.8% in HY 2019, including 1.9 percentage points coming from investment gains (HY 2018: 0.3%). The residual ‘running’ yield(6) was 2.9%, up slightly on HY 2018’s 2.8%.

At a glance


Capital

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Total reinsurance dedicated capital (USD billions)(7)

Total industry capital grew robustly in HY 2019

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Capital analysis for the INDEX (USD billions)

Growth was attributable to INDEX capital, which was fuelled by investment gains


Footnotes

  • (1) See Appendix 1 (see pdf) for details on our methodology.
  • (2) INDEX relates to those companies listed within Appendix 2 of this report (see pdf).
  • (3) SUBSET is defined as those companies that make the relevant disclosure in relation to nat cat losses and prior year reserve releases. Appendix 2 (see pdf) also identifies the SUBSET companies.
  • (4) The normalised nat cat loss and the underlying combined ratio metrics are new in this report. As explained on page 15, we replace actual nat cats with their five year moving average (measured on a full-year basis).
  • (5) Note that we have slightly revised the impact of normalised nat cats on RoE and have restated prior-year underlying RoEs. As originally reported, HY 2018’s underlying RoE was 3.4%.
  • (6) Running yield captures items such as bond coupons, equity dividends and interest income.
  • (7) Due to additional available disclosure on FY 2018 results, the USD 335 billion INDEX capital for 2018 differs from the USD 336 billion in our year-end 2018 report. We have re-stated year-end 2018 capital from USD 461 billion (originally reported: USD 462 billion) to USD 518 billion, to allow for a change in constituents and also a broader definition of capital. Appendix 1 of this report explains in more detail.
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