The continued stability of the reinsurance market despite the catastrophe loss activity in 2017 is a significant achievement and a testament to its strength, according to James Kent, global CEO of Willis Re.
Kent’s comments reflected the findings of the Willis Re Reinsurance Market Report, which revealed year-end 2017 results for the reinsurance market based on the 34 companies tracked in the Will Reinsurance Index.
The report found that shareholders’ equity was up to $371 billion at year-end 2017, a 7.8 percent increase on the previous year, despite catastrophe losses which led to a weighted combined ratio for the tracked reinsurers of 104.8 percent, up 10.4 percent from 2016.
Alternative capital also increased from $75 billion to $88 billion at year-end 2017, in spite of the draw-down of some catastrophe bonds and collateralised reinsurance and retrocession layers in the wake of the 2017 Atlantic hurricanes.
The equity increase was driven by unrealised investment gains of $34.7 billion, however, when National Indemnity is excluded from the group, the total shareholders’ equity was roughly stable, at $343.7 billion.
Profitability relied largely on significant realised investment gains of $9.7 billion, up 38.6 percent, largely influenced by a $2.7 billion investment gain realised by Fairfax following the sale of two subsidiaries and equity gains.
Underwriting losses were partly offset by high prior-year reserve releases, while capital of $15.6 billion was returned by reinsurers through dividends ($11.2 billion) and share buybacks ($4.4 billion) far surpassing the aggregate net income of $12 billion.
The report revealed the results of a combined ratio analysis, which saw 2017 compared with 2005 and 2011, both of which were severely catastrophe-affected years.
The results of the analysis showed that the reported combined ratio for last year 107.4 percent compared with 108.2 percent (2011) and 112.8 percent (2005).
Natural catastrophe losses in 2017 had an 18.1 percent impact, lower than for both 2011 (24.8 percent) and 2011 (25.8 percent).
Particularly notable in the analysis results was that, excluding natural catastrophe losses and prior reserve releases, the Ex-Cat Accident Year combined ratio deteriorated to 94.6 percent last year, up from 90.2 percent in 2011.
Kent commented: “2017 was one of the worst years on record for insured natural catastrophe losses. However, today the global reinsurance market is able to deploy more capital than at the same time last year.”
“That’s a significant achievement for the reinsurance market, and a testament to its strength.”
According to Kent, the comparison of 2017’s natural catastrophe experience with 2005 and 2011 shows a number of large global property catastrophe reinsurance accounts were not impacted by the events of 2017.
“The 2017 result was supported by the aforementioned reserve releases and investment gains which remains a concern and is why many reinsurers continue to try to push pricing on under-performing lines.”
He added: “The pressure on traditional reinsurers from alternative capital suppliers is stronger than ever, as many participants in this market cleared their first true major test.”
“This increase in alternative capital, as well as the global reinsurance market having more capital to deploy, is continuing to dampen price increases in the mid-year renewals.”
