Traditional reinsurance capital reduces to $357B; pressure on RoEs continues

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LONDON, April 22, 2016 (GLOBE NEWSWIRE) — 2015 saw a 3.5% reduction in traditional capital dedicated to reinsurance, down $13B from $370B at year-end 2014, according to the latest Reinsurance Market Report from Willis Re, the reinsurance business of leading global advisory, broking and solutions company Willis Towers Watson (NASDAQ:WLTW).

However, the decline in traditional capital was offset by the continued growth in non-traditional capital, which hit new heights of $70B.1 In total, global capital dedicated to reinsurance now stands at $427B.2

According to the report, which is based on the Willis Reinsurance Index, 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. In 2015, the Index group of companies returned a total of $23.3B to shareholders, representing 77% of net income (FY 2014 $20.4B); $5.5B was returned through share buybacks (FY 2014 $7.8B) and $17.8B through ordinary and special dividends (FY 2014 $12.6B)

The decrease in traditional capital is also a result of unrealised investment losses and the strengthening of the U.S. Dollar against the Euro. The record volume of mergers and acquisitions activity in 2015 was also a key driver. For companies within the Index, these factors accounted for a reduction of approximately $20.9B.3

However, despite the headline 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 (“the subset”) 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 2014.4

A significant rise in expense ratios over several years is a major factor eroding RoEs. As the report highlights, expense ratios for the subset have risen by approximately four percentage points to 33.1% between 2007-2015. In 2015 alone, expense ratios increased by one percentage point. This comes as reinsurers continue to invest in underwriting and diversify their business portfolios. The increasing costs associated with enhanced regulation and governance is also impacting bottom lines.5

Commenting on the report, John Cavanagh, Global CEO of Willis Re, said: “Reinsurers continue to face a myriad of headwinds placing downward pressure on underlying results. However, headline figures remain robust and capital positions are strong – the dual saviours of reserve releases and low severity loss experience continue to underpin reported results.

“Yet underlying RoEs are now beginning to breach minimum target thresholds. The pressure persists with capital remaining at record levels amidst the continued influx of capital from non-traditional sources.

“Given the current climate, the broadening of reinsurer business models is proving a successful strategy for many and increasing relevance to clients, despite the impact on expense ratios. But ultimately, reinsurers will yet again be looking to another below average loss year to maintain acceptable results.”

Further highlights from the report include:

  1. 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, aggregate reported net written premium actually decreased in 2015 by approximately 4.2% for the constituents of the Willis Reinsurance Index.
  2. For the subset of Willis Reinsurance Index companies, combined ratios increased to 94.5% in 2015, compared to 91.6% in 2014 (excluding natural catastrophe losses and prior year reserve releases). Adjusting results for a normalised natural catastrophe load and on the assumption of no prior year reserve releases, the overall combined ratio would be much closer to 100%.
  3. Average reported portfolio investment yields showed little improvement as improvements in interest rates remain elusive. Investment yields for the Index companies remained low at 2.9% in 2015, broadly unchanged from 2.7% in 2014.
  4. Capital pressures continue to be exacerbated by the unprecedented period of low severity losses. Based on Swiss Re Sigma figures, 2015 saw the lowest losses on record from natural catastrophes since 2009, and approximately half the $55B-$60B annual average over the last decade.

Download the full report:
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 2015 the Index includes 38 companies from across the globe (down from 43 in 2014 due to the acquisitions of Platinum by Renaissance Re; Catlin by XL Capital; Brit by Fairfax; HCC by Tokio Marine; and Montpelier Re by Endurance).

1 Source: WCMA

2 Including other major regional and local reinsurers, and a pro-rated portion of capital within major groups whose reinsurance portfolio is <10% of their total premium, we derive an estimate of USD 357B of aggregate shareholders’ equity for the traditional reinsurance market. If 100% of that capital within these major groups is included the figure is estimated at USD 553B. Including capital from alternative markets the figure of USD 357B increases by USD 70B to approximately USD 427B (with 100% capital, USD 623B).

3 Shareholder equity within the Index brought forward, $343.6B; net income, $30.3B; buy backs/dividends, ($23.3B); unrealised investment depreciation ($9.3B); other (inc FX movement), ($11.6B); shareholder equity brought forward, $329.7B; outlined on p2 of the report

4 Typical catastrophe year estimated as generating circa $55B-60B of catastrophe losses (equivalent to c.4% impact on RoE); outlined on p3 of the report

5 These figures relate to the SUBSET group of the Willis Reinsurance Index; those that make the relevant disclosure in relations to cat losses and prior year reserve releases. All constituents of the SUBSET are publicly listed groups that compose 59% of the aggregate capital INDEX and 82% of net premium.
Detailed breakdown on p21 of the report

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One of the world’s leading reinsurance brokers, Willis Re is known for its world-class analytics capabilities, which it combines with its reinsurance expertise in a seamless, integrated offering that can help clients increase the value of their businesses. Willis Re serves the risk management and risk transfer needs of a diverse, global client base that includes all of the world’s top insurance and reinsurance carriers as well as national catastrophe schemes in many countries around the world. The broker’s global team of experts offers services and advice that can help clients make better reinsurance decisions and negotiate optimum terms. For more information, visit

Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 territories. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at


Laura Molloy: +44 20 3124 8555 | [email protected]

Matthew J. Rohrmann: +1 212 915 8180 | Matt.Ro[email protected]

Aida Sukys: +1 703 258 8033 | [email protected]

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