Index capital reduced by USD 13.7 billion due to the exits of Validus and XL Catlin through M&A. Companies paid out the majority of the USD 20.5 Billion of net income as dividends and buy-backs which together reduced Index capital by USD 17.6 billion. This equated to a pay-out ratio of 86% of net income. The overall decrease in Index capital was due to unrealised investment depreciation of USD 21.4 billion, mainly due to falling equity markets and rising bond yields. Notably, National Indemnity reported USD 10.2 Billion of unrealised investment depreciation.
Willis Re conducted a more in depth analysis on a subset2 of reinsurers within the Index which make the relevant disclosure in relation to natural catastrophe (nat cat) losses and prior year reserve releases. This analysis showed that the reported RoE for the subset recovered from 2017’s nat cat-affected 1.4% to 4.2%. Normalising for a 4% nat cat loss and also removing the benefit of reserve releases resulted in an underlying Return on Equity (RoE) of 2.7% for the subset versus 2017’s 3.8% RoE.
The main driver of the improvement in reported RoE for the subset, and drop in underlying RoE, was the combined ratio. The headline combined ratio for the subset recovered from 2017’s 107.4% to 99.2%. However, stripping out 4.6 percentage points of reserve releases (marginally lower than 2017’s releases) and 8.6 percentage points of nat cat losses (significantly down on 2017’s 18.1 percentage points), results in an ex-nat cat accident year combined ratio of 95.3% for the subset, a deterioration versus 2017’s 94.6%.
James Kent, Global CEO, Willis Re, said: “Overall shareholders equity figures for the Index suffered a negative impact due to unrealised investment losses, owing to external factors largely beyond the control of risk carriers, as well as shareholder buy backs and dividends. The report’s findings show that the remedial actions taken by many risk carriers in 2018 were essential and we are seeing an acceleration of these actions in 2019 as companies seek improved underwriting terms and rates to drive RoEs.”
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 2018 The Index includes 32 companies from across the globe.
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