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 (NASDAQ: WLTW).
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.
The Index delivered return on equity of 3.4%, down from 8.0% in 2016, after aggregate net income fell to USD 12.0 billion (2016: USD 26.6 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.
In a new combined ratio analysis, Willis Re compared 2017 with the severe catastrophe-affected years of 2005 and 2011. The analysis of a subset of reinsurers shows that the reported combined ratio for 2017 was 107.4% compared with 108.2% in 2011 and 112.8% in 2005. The impact of natural catastrophe losses in 2017 was 18.1% lower than 2011 (24.8%) and 2005 (25.8%). Notably, excluding natural catastrophe losses and prior year reserve releases, the Ex-Cat Accident Year combined ratio deteriorated further to 94.6% in 2017, from 90.2% in 2011 and 89.2% in 2005.
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.”
He continued: “Comparing the 2017 natural catastrophe experience with 2005 and 2011 shows that a number of large global property catastrophe reinsurance accounts were not impacted by the events of 2017. The primary market retained more of the losses from the year’s numerous catastrophe events under higher retentions. The Ex-Cat Accident Year comparison of only a 5pt increase from 2005 may be viewed as surprising given the years of rate reductions in the past decade. The 2017 result was supported by the aforementioned reserve releases and investment gains which remains a concern and is why many reinsurers continue to try to push pricing on under-performing lines.
“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.”
Download the full report: The Willis Re Reinsurance Market Report is a biannual publication providing in-depth analysis of the size and performance of the reinsurance market. Analysis is based on the Willis Reinsurance Index group of companies. In 2017 The Index includes 34 companies from across the globe.
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