From Artemis:
Alternative reinsurance capital’s continued growth through 2018, as well as the slight shrinking of traditional reinsurer capital have been confirmed in a report out today, while at the same time profits at reinsurers are seen to have shrunk again, based on underlying returns on equity (ROE’s).
Total dedicated global reinsurance sector capital was measured at $462 billion at the end of 2018, according to Willis Re’s latest report.
Shareholder equity of the 32 reinsurance companies tracked in the firms Willis Reinsurance Index fell by 10% to $335.7 billion, a reversal from the growth of 8% seen in 2017.
But alternative reinsurance capital, so that employed by insurance-linked securities (ILS) funds, collateralized reinsurers and other capital markets backed structures, expanded by 6% to reach $93 billion at the end of 2018.
It’s interesting to see that by Willis Re’s measure, the compound growth rate of traditional reinsurance capital has actually been a slow decline since 2014, at -1%.
Where as, alternative reinsurance capital has achieved compound annual growth of an impressive 9% across the five-year period.
The main reasons that traditional capital shrank in 2018 were mergers and acquisitions (M&A) related shrinkage, largely the exits of Validus and XL Catlin as independent companies, as well as dividends and capital returns, plus unrealised investment depreciation, the broker explained.
The data confirms the growing importance of ILS and alternative capital in global reinsurance, as despite the expansion of major reinsurers, who continually grow their platforms and diversify into primary lines or other areas of risk, the overall capital they contribute between them has actually been shrinking across the five years since 2014.
This does imply rising expenses without rising capital bases for many in the sector, something that is perhaps reflected in Willis Re’s measure of return on equity (ROE) for a subset of the Reinsurance Index it tracks.
While reported ROE’s recovered in 2018 after the catastrophe loss heavy 2017 year, once normalised and after removing any benefit from reserve releases, the subset ROE for 2018 came out at just 2.7%, down from 3.8% for 2017 (as shown below)....MUCH MORE
