Global reinsurance capital, profits and ROE on the rise

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

Total capital dedicated to the global reinsurance industry measured US$688bn after the first six months of 2021, reflecting a 4% increase from 31st December 2020, driven in the main by strong net income.

Reinsurers together achieved exceptionally strong premium growth of 15% during H1 2021, with a weighted average reported combined ratio of 94.1%. Despite abnormally heavy nat cat activity so far this year, the ratio marks a dramatic improvement from the COVID-impacted 104.1% in H1 2020.

James Kent, global CEO, Willis Re, said: “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.”

Willis’ Reinsurance Market Report shows that 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% in H1 2020 to 98.4%. 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, according to the report. The reported ROE recovered from last year’s minus 0.7% to reach 13.9%, while the underlying ROE more than doubled to reach 6.3%. Nevertheless, the underlying ROE still remains below the industry’s cost of capital.

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