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Jun 2021

Reinsurers show signs of underlying combined ratio improvement - Willis Re

Source: Middle East Insurance Review | May 2021

An in-depth analysis conducted by Willis Re of the results of a set of 17 reinsurers shows that their 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 ie, normalising COVID-19 and Nat CAT 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, said Willis Re in its latest ‘Reinsurance Market Report’.
 
ROE
Willis Re also said that return on equity (ROE), nevertheless, remains under pressure. The 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.
 
Capital
Total capital dedicated to the global reinsurance industry reached $658bn at the end of 2020, reflecting a 7% y-o-y growth.
 
The rise was driven primarily by strong investment market appreciation. New capital raised both by incumbents and new entrants added to the total, but capital returns to shareholders exceeded those new investments.
 
Willis Re global CEO James Kent said, “Such a solid development of the global reinsurance industry’s capital base would hardly have been expected earlier last year, as the 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.” M 
 
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