Global reinsurance capital, profits, and ROE on the rise in H1, says Willis Re

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Global reinsurers performed well in the first half of 2021, with a further expansion of their capital bases and strong headline underwriting results and ROEs. Underlying ROEs, while less strong, were nonetheless noticeably improved, according to the latest Reinsurance Market Report from Willis Re, the reinsurance business of Willis Towers Watson.

Total capital dedicated to the global reinsurance industry measured USD688 billion after the first six months of 2021, reflecting a 4 per cent increase from 31 December 2020. The rise was driven primarily by strong net income. To fuel organic growth in the positive rating environment, reinsurers typically retained more income than has been usual in recent years.
 
Reinsurers together achieved exceptionally strong premium growth of 15 per cent during H1 2021. Their weighted average reported combined ratio was 94.1 per cent, which closely matches the figures reported for the 2016 to 2019 half years. Despite abnormally heavy natural catastrophe activity so far this year, the ratio marks a dramatic improvement from the Covid-impacted 104.1 per cent in H1 2020. Reported combined ratios also benefitted from slightly higher levels of reserve releases, reversing the trend of declining releases seen since 2017.
 
The reinsurers’ underlying half-year combined ratio, excluding prior year development, and normalising for natural catastrophe losses, has improved steadily since 2017. This continued in H1 2021, falling from 98.6 per cent in H1 2020 to 98.4 per cent. A lower expense ratio supported the improved combined ratios, as rapid premium growth more than offset rising costs.
 
The average ROE also rebounded strongly, assisted by improved investment returns. The reported ROE recovered from last year’s minus 0.7 per cent to reach 13.9 per cent, while the underlying ROE more than doubled to reach 6.3 per cent. Nevertheless, the underlying ROE still remains below the industry’s cost of capital.
 
James Kent, Global CEO, Willis Re, says: “Reinsurance providers will be heartened by these results. The industry has endured several years of below-par performance, capped by the calamitous experience of COVID-19. Now the remedial work reinsurers have undertaken over the past several years is bearing fruit.
 
“Unfortunately, though, very strong premium growth in the first half of this year was achieved against combined ratios which are not much lower than during the softer parts of the cycle, therefore leaving underlying ROEs still languishing below the cost of capital.”

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