Shareholders’ equity in 34 reinsurance companies for the first half of 2018 totalled US$364.9 billion, a 1.6% decrease from end-2017 levels, a report by Willis Re has revealed.
According to data from the Willis Reinsurance Index, the decrease occurred despite an improvement in net income of nearly 75% to US$14.5 billion, largely due to lower natural catastrophe losses which supported a reduced combined ratio of 94.3%, or 0.7 percentage points lower than reported for the first half of 2017.
Despite higher net income from the 34 reinsurers tracked in the index, aggregate shareholders’ equity fell as reinsurers continued to return capital to investors through dividends and share buy-backs, which totalled US$11.1 billion as of the first half of 2018. Shareholders’ equity was also reduced by unrealized investment depreciation of US$8.3 billion which was due in part to rising interest rates. Meanwhile, alternative capital increased to US$88 billion from US$75 billion in the first half of 2017.
Willis Re reviewed the approximate movements in 2017 natural catastrophe loss estimates from year-end 2017 to the midpoint of 2018. It showed that the majority of reinsurers reported reserve releases in the first half of 2018, due to a lowering in their estimates for 2017 natural catastrophe losses compared to their figures reported at year-end.
“Hopes for a hard market after the natural catastrophe losses of 2017 were not satisfied, but property cat pricing did rise overall during the first half of the year,” said James Kent, global CEO of Willis Re. “Reinsurers are correcting prices when necessary and leveraging their continuously improving analytics and data. They are pricing more precisely, which is making the swings of the reinsurance pricing cycle shallower. This we believe to be the new normal.
“Despite a small decline in conventional reinsurers’ capital, the increase in non-traditional investment in our market means that global reinsurance capital is slightly higher than at the same time last year,” he said. “Many reinsurance investment funds have increased their 2018 assets under management, which limited price rises after the Harvey, Irma and Maria losses, particularly in Florida. Notably, we found that 11 reinsurers reported reserve releases at H1, 2018 after they lowered their 2017 catastrophe loss estimates, but six had to add to their reserves. Looking ahead, longer-term reserve releases must be reaching exhaustion, which may have a deleterious effect on future results.”
