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May 2020

Global - Traditional reinsurance capital drops to US$357 billion in 2015 - Willis Re

Source: Asia Insurance Review | Jun 2016

Traditional capital dedicated to reinsurance in 2015 saw a 3.5% drop, down US$13 billion from 2014’s $370 billion, according to the latest Reinsurance Market Report from Willis Re. This decline, however, was offset by steady growth in non-traditional capital to a record high of $70 billion, bringing the total global capital dedicated to reinsurance to $427 billion last year.
   The report, based on the Willis Reinsurance Index, states that continued focus on active capital management is a main driver behind the fall in traditional capital as opportunities for acceptably profitable capital deployment remain challenging.
   Furthermore, the decrease in traditional capital is also a result of unrealised investment losses and the strengthening of the US Dollar against the Euro. The record volume of mergers and acquisitions activity in 2015 was also a key driver.
Capital oversupply remains a fundamental challenge
However, despite the decline, capital oversupply remains a fundamental industry challenge and market pressures continue to manifest themselves in diminishing Return on Equity (RoE). 
   According to the report, companies within the Index providing catastrophe loss and prior year reserve release disclosure, continue to show a seemingly healthy aggregate reported RoE of 10.2%, albeit down from 11.5% in 2014. However, based on a more typical catastrophe loss year and excluding prior year reserve releases, aggregate RoE would diminish to just 3.4%, down from 5.8% in 2014.
   The report also states that despite intense softness in the market, a number of reinsurers achieved premium growth during 2015. However, while noting that an accurate comparison of aggregate premiums written in 2015 is compromised by foreign exchange movements.
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