Shareholders’ equity in 34 reinsurance companies tracked in the Willis Reinsurance Index was up 7.8% to USD 371 billion at year-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 USD 88 billion (year-end 2016: USD 75 billion), despite the draw-down of some catastrophe bonds and collateralized reinsurance and retrocession layers in the wake of the 2017 Atlantic hurricanes.
These are 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 unrealized investment gains of USD 34.7 billion. However, when National Indemnity is excluded from the group, the total shareholders’ equity was roughly stable, at USD 343.7 billion.
Profitability was also heavily reliant on significant realised investment gains of USD 9.7 billion, up 38.6%, driven largely by a USD 2.7 billion investment gain realized 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 USD 15.6 billion was returned by reinsurers through dividends (USD 11.2 billion) and share buybacks (USD 4.4 billion) far exceeding the aggregate net income of USD 12.0 billion.
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.”
“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.”