Robust reinsurance market despite soft conditions says Willis Re

Reinsurers’ results for 2016 show that the reinsurance market is robust despite the continuing soft market conditions, according to Willis Re’s latest Reinsurance Market Report. Aggregate shareholders’ funds for companies making up the Willis Re Index increased by 4% to $344.1bn as at 31 December 2016. Taking into account capital from alternative markets and a pro rata share of capital from insurance groups where reinsurance makes up more than 10% of their total premium, the revised figure is $449bn, an increase over the previous year of $427bn. Willis Re says that reinsurers are dealing with the persistent challenge of significant excess capacity through active capital management and broadened their underwriting platforms. This would suggest there is little pressure to increase prices and the soft market conditions will continue in both the primary and reinsurance markets. According to the report, aggregate net income for companies making up the Willis Re Index reduced to $26.6bn from $30.3bn resulting in a reduction of the headline return on equity (ROE) of 8.0% down from 9.3% at the end of 2015. Reinsurers have continued to actively manage their capital through dividends and share buy backs, totalling $16.4bn for the Willis Re Index. John Cavanagh, global CEO of Willis Re, said: “The continued challenging conditions of the market further impacts pressure on margins. However buyers can take comfort from the fact that the market balance sheet and headline figures remain robust in the face of persistent market softening due to continued reasonable net income and measured capital management strategies.” There are some signs of stress in the market however. The report notes that the 2016 headline return on equity (RoE) of 8.0% was down from 9.3% at the end of 2015, and the reported combined ratio for the index increased to 94.4% in 2016 from 91.4% for 2015. Catastrophe losses were lower in 2016, Willis adds that profitability continues to be reliant on releases of prior year reserves. Profitability also benefited from a reduction in insured man-made catastrophe losses to $8bn compared to $10bn in 2015. Although the trend for substantial reserve releases continued, the report states, further pockets of adverse reserve development were reported by a number of reinsurers at the end of 2016, including for US asbestos and certain casualty classes of business. The report notes: “Due to continued weak pricing, reinsurers have further broadened their underwriting platforms in order to deploy capital to classes of business which they view as being more favourably rated. Reinsurers have continued to moderate their exposure to catastrophe exposed business and increased capital allocation to other classes of business which include primary, life and health and certain specialty lines of business such as agriculture and mortgage insurance.” Looking ahead, the report concludes that year-end 2017 results may be impacted by macro-economic volatility due to potential changes in the US tax framework, the implementation of the EU-US Covered Agreement and the Brexit negotiations.

Robust reinsurance market despite soft conditions says Willis Re

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