The largest component of this figure is the capital of the 36 reinsurance companies tracked in the Willis Reinsurance Index, which was up 11% to USD 440 billion, principally due to falling bond yields and rising equity markets. The strong investment appreciation was a reversal of the trend noted in the year-end 2018 Reinsurance Market Report. Fresh capital backing the Convex start-up also contributed to the H1 2019 capital growth.
Willis Re conducts a more in depth analysis on a subset of reinsurers within the Index which make the relevant disclosure of natural catastrophe (nat cat) losses and prior year reserve releases. The reported RoE for this subset jumped to 13.9% from 8.5% at HY 2018, driven by strong investment gains. Excluding investment gains (which had only a minor impact in HY 2018), the RoE was 7.3%.
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 gains2.
The subset’s combined ratio deteriorated from 93.3% in HY 2018 to 94.9% on a reported basis. This was entirely attributable to a lower pace of reserve releases and higher nat cat activity. Stripping out prior-year development and replacing actual nat cats with a normalised level, we put the underlying combined ratio at 100.5%, an improvement on HY 2018’s 101.5%.
James Kent, Global CEO, Willis Re, said: “Looking behind the headline figures reveals a positive direction of travel for reinsurers so far this year, with modest but important reductions in non-catastrophe combined and expense ratios. This improvement is supported by the positive trajectory seen in 2019 market pricing across many lines. The slowdown in reserve releases continues, however, so in the months and years ahead reinsurers will need to further realise these trends.”
1This allows for a change in constituents and a broader definition of capital. See Appendix 1 of the report for details on the methodology.
2The report has slightly revised the impact of normalised natural catastrophes on RoE and has restated prior-year underlying RoEs. As originally reported, HY 2018’s underlying RoE was 3.4%.