Global reinsurers see net income down but strong balance sheets, says Willis Re

Willis Re has reported that the global reinsurance industry is seeing net incomes and return on equity decreasing, but shareholders’ funds have strengthened and balance sheets remain strong. In its latest Reinsurance Market Report, Willis Re states that challenging market conditions saw shareholders’ funds in the Willis Reinsurance Index total $348.2bn at the end of the first half of 2017, a 1.2% increase from $344.1bn at year-end 2016. The $4.1bn increase in shareholders’ funds was reliant on unrealised investment gains of $8.3bn, which were not reported within net income. Ongoing market pressures resulted in a reduction in the aggregate net income for the first half of 2017 to $8.3bn from $14.5bn for the first half of 2016. Analysis is based on the Willis Reinsurance Index group of companies, which includes 36 companies from across the globe. The report notes that the $10.8bn of capital returned through dividends and share buybacks exceeded net income, which was supported by realised investment gains of $3.4bn. The reduction in the aggregate net income resulted in an increase in combined ratios for the index to 95%, up from 94.1% for the first half of 2016, and a reduction in investment yields to 2.8% from 3.1%. “A significant reduction in both natural and man-made catastrophe losses, along with continued substantial support from reserve releases, were not sufficient to offset the increase in the reported combined ratios,” states the report. John Cavanagh, global CEO of Willis Re, commented: “Ongoing market pressures are undoubtedly manifesting themselves in a diminishing underlying return on equity and further impacting reduced net incomes. This deterioration is further weakening the global reinsurance industry’s performance. However, despite these challenging conditions shareholders’ funds have strengthened, maintaining robust balance sheets across the market.” The aggregate reported net written premium of the index rose by 2.0% to $129.8bn, from $127.3bn for the first half of 2016. “The constituents of the index continue to face the challenge of significant excess capacity, which has been further exacerbated by a $4.1bn increase in shareholders’ equity at HY 2017,” states Willis Re. “Reinsurers also continue to bolster profitability through substantial reserve releases, albeit reduced from HY 2016 due to the Ogden rate change. Going forward, RoEs may come under further pressure in the event of a normalisation of natural catastrophe losses or a reduction in the quantum of reserve releases reported in recent periods.” The report notes that reinsurers continue to moderate their exposure to catastrophe exposed business, including for their US business, due to ongoing pricing pressure. And it adds: “Ongoing rate pressure has resulted in further efforts to diversify underwriting platforms. Target reinsurance growth areas have included structured P&C, life, health, and certain specialty lines such as cyber and mortgage business. Premium growth for some constituents of the index has been supported by further allocation of capital to primary business.”

Global reinsurers see net income down but strong balance sheets, says Willis Re

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