New capital raised both by incumbents and new entrants added to the total, but capital returns to shareholders exceeded those new investments, as the report shows.
Willis Re conducts an in-depth analysis of the results of 17 reinsurers, meaning companies that make the relevant disclosure in relation to catastrophe losses and prior year reserve releases. The subset's reported combined ratio deteriorated from 100.6% in 2019 to 104.1% in 2020, due entirely to COVID-19 loss reserving. However, on an underlying basis i.e. normalizing COVID-19 and natural catastrophe losses and excluding reserve releases, the combined ratio improved from 103.1% to 100.7%. This is the first full-year improvement in this ratio since at least 2014.
Return on equity (ROE), nevertheless, remains under pressure. The subset companies' reported ROE fell from 9.7% to 2.7%, and the underlying ROE also fell from 3.2% to 1.3%. The underlying deterioration was due to declining investment yields more than offsetting the better underlying underwriting performance. On both a reported and underlying basis, the ROE remained well below the industry's cost of capital.
James KENT, Global CEO, Willis Re, 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. 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."
The Willis Re Reinsurance Market Report is a biannual publication providing in-depth analysis of the size and performance of the reinsurance market. Analysis is based on the Willis Reinsurance Index group of companies. In 2019 The Index includes 39 companies from across the globe.
The full report can be read here.