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Survey Report

Willis Re Reinsurance Market Report September 2021: Results for half-year

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

September 8, 2021

Total capital dedicated to the global reinsurance industry measured USD 688 billion after the first six months of 2021, reflecting a 4% increase from 31 December 2020.

Key findings

Welcome to the 14th semi-annual publication of Willis Re’s Reinsurance Market Report which tracks the evolution and performance of the global reinsurance industry.

Global reinsurers performed well in the first half of 2021, with a further expansion of their capital base and strong headline underwriting results and ROEs. Underlying ROEs, while less strong, were nonetheless noticeably improved.

Global reinsurance dedicated capital totalled USD 688B at the end of the first half, up 4% on the restated 2021 base.1 Growth came both from the INDEX2 companies and alternative capital.

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

  • The INDEX companies achieved a 5% increase in capital.
  • The main driver was a strong level of net income.
  • Also, more of this net income was retained than in recent years, with a little less than half returned to shareholders. This is likely due to optimism about the current rating environment and the desire to redeploy capital into organic growth. Some spill-over of last year’s restrictions by some European regulators on dividend payments and buy-backs may have also played a role in the lower payouts.
  • Robust equity markets also supported the industry’s capital growth, and this more than offset weakness in government bond markets.
  • Capital raising was subdued in the period, following an active 2020.

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

  • Premium growth was an exceptionally strong 15%, aided by price increases at both the primary and reinsurance levels. The rebounding global economy has also led to exposure growth. The 15% growth rate is the strongest we have seen at the half year stage since we began producing this analysis in 2014.
  • The reported combined ratio rebounded strongly, from last year’s COVID-impacted 104.1%, to 94.1%. This year’s figure closely matches the combined ratio reported over the 2016-19 half years. It was impacted by abnormally heavy natural catastrophe activity. On the other hand, it benefited from a slightly higher level of reserve releases than last year – reversing the trend of reducing reserve releases seen since 2017.
  • On an underlying basis (i.e. stripping out prior year development and normalising natural catastrophe losses)3 the combined ratio has steadily improved since the 2017 half year. This continued in the first half of 2021, with a slight improvement from 98.6% last year to 98.4%.
  • The combined ratio also benefited from a lower expense ratio, as rapid premium growth more than offset expense growth.
  • ROEs also rebounded strongly, on the back of the improved underwriting results and also due to better investment returns. The reported ROE recovered from last year’s -0.7% to 13.9%. The underlying ROE4 increased from 2.7% to 6.3%.
  • It remains the case, though, that a 6.3% underlying ROE remains below the industry’s cost of capital.

Footnotes

1 Our originally reported year-end 2020 capital of USD 658B has been updated for companies who reported after the publication date of our full-year 2020 report. This takes the re-stated figure to USD 660B.

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

3 The underlying basis replaces both actual natural catastrophe and COVID losses with a normalized natural catastrophe load, as well as stripping out prior year reserve movements.

4 This is the underlying ROE excluding investment gains.

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