ROE ‘flattered’ by reserve releases, says Willis Re boss Cavanagh
Reinsurers are focused on maintaining their financial stability and their capital levels remains robust, despite a challenging catastrophe environment with an underlying fall in Return on Equity (RoE), according to Willis Re.
Shareholders’ funds within the Willis Reinsurance Index increased 2.6 percent from the year-end 2015 to $338.3 billion in the first half of 2016.
The net income for the index was $14.5 billion, offset by $10.6 billion share buybacks and dividends.
Furthermore, Willis Re said reinsurers are under continued pressure from market pricing weakness that, when exacerbated by natural catastrophes losses, led to an upswing in the combined ratio for the Index.
The report suggests that ongoing market pressures are manifesting themselves in a diminishing underlying RoE, the full effect of which continues to be minimised by prior year reserve releases; for the Subset of the Index, this underlying RoE reduced from 4.9 percent in H1 2015 to 4.5 percent in H1 2016.
John Cavanagh, global chief executive officer of Willis Re, said: “There is no doubt that market conditions remain challenging for reinsurers. As the latest Willis Reinsurance Market Report highlights, the industry’s return on equity continues to be flattered by strong support from prior year reserve releases. Despite this, the balance sheet strength of the market remains robust; reinsurers with significant balance sheet scale and breadth, and those which have reserved prudently will be best positioned to maintain profitability.”
