The growth in global capital dedicated to reinsurance stabilised during H1 2015, according to the new Reinsurance Market Report from Willis Re.
Dedicated global reinsurance capital from both traditional and non-traditional sources remains at $425 billion, unchanged from the record level reached at year-end 2014.
The levelling of capital, according to the report, comes as reinsurers accelerate their active capital management strategies as acceptably profitable capital deployment opportunities in the market diminish.
In H1 2015, publicly listed companies within the Willis Reinsurance Index returned virtually all earnings to shareholders, a total of $16 billion.
A number of reinsurers have also committed to returning earnings to shareholders at year-end if they believe additional retained capital cannot be deployed profitably.
The report suggests that capital levels are also being affected as merger and acquisition activity intensifies and transactions are completed. Some 10.5 percent of shareholders’ equity reported within the Willis Reinsurance Index is currently involved in major merger activity.
But Willis does believe that ultimately the challenge of oversupply remains and market pressure continue to manifest themselves in diminishing returns on equity.
Underlying reinsurer returns on equity during H1 2015 are even lower than during H1 2014, according to Willis.
John Cavanagh, global CEO of Willis Re, commented: “Markets clearly continue to face significant over-capacity and competitive pricing conditions, and overall underwriting margins remain under substantial pressure.”
“Ultimately, however, reinsurance remains attractive to investment capital in the long-term despite the diminishing underwriting and investment returns being delivered.”
