Global Reinsurance Capital Grew 7 Percent in 2020, Willis Re Finds

Total capital dedicated to the global reinsurance industry grew 7 percent in 2020 to $658 billion, according to Willis Re.

The increase was driven primarily by strong investment market appreciation, Willis Re said. New capital raised by both existing reinsurance companies and new players added to the total, but capital returns to shareholders exceeded those new investments, according to Willis Re's latest Reinsurance Market Report.

The combined ratio of a subset group of 17 reinsurers Willis Re analyzed in depth deteriorated to 104.1 percent in 2020 from 100.6 percent a year earlier, due entirely to COVID-19 reserving. However, on an underlying basis—that is, after normalizing COVID-19 and natural catastrophe losses and excluding reserve releases—the subset group's combined ratio improved from 103.1 percent in 2019 to 100.7 percent in 2020, Willis Re said, representing the first full-year improvement in the ratio since at least 2014.

Still, reinsurance companies' return on equity (ROE) remains under pressure, Willis Re found. The subset companies reported ROE fell from 9.7 percent in 2019 to 2.7 percent in 2020, and the underlying ROE also fell from 3.2 percent to 1.3 percent. Willis Re attributed the underlying deterioration to declining investment yields more than offsetting the better underlying underwriting performance. On both a reported and an underlying basis, the ROE remained well below the reinsurance industry's cost of capital, the intermediary said.

"Such a solid development of the global reinsurance industry's capital base would hardly have been expected earlier last year, as the COVID-19 pandemic was gathering pace," James Kent, global CEO of Willis Re, said in a statement. "Willis Re's analysis provides clear evidence of the strength and resilience of reinsurance market capacity. Reinsurers and insurers alike must contend with the challenges of low interest rates. But, looking through the turbulence of COVID-19 and nat cat claims, and a declining reliance on reserve releases, there is a clear improving trend in underwriting profitability."