Shareholders' funds grow but profits dip across industry in 2016
Aggregate shareholders’ funds for companies included in the Willis Re Index, which examines the results of the world’s biggest reinsurance groups, increased by 4 percent to $344.1 billion as at 31 December 2016, according to the latest Reinsurance Market Report from Willis Re.
If capital from alternative markets and a pro rata share of capital from insurance groups where reinsurance makes up more than 10 percent of their total premium are included, the revised figure is $449 billion, an increase over the previous year of $427 billion.
But despite the growth in shareholders’ funds, aggregate net income for companies making up the Willis Re Index reduced to $26.6 billion from $30.3 billion resulting in a reduction of the headline return on equity (ROE) of 8 percent down from 9.3 percent at the end of 2015.
In the face of testing market conditions, reinsurers have continued to actively manage their capital through dividends and share buy backs, totaling $16.4 billion for the Willis Re Index.
For companies making up the Subset of the Willis Re Index (i.e. companies which provide more detailed financial disclosure), the reported return on equity (ROE) fell to 8.2 percent from 10.2 percent in the previous year. When adjusted for reserve releases and normalized annual catastrophe losses, the underlying ROE for the Subset reduced to 3.3 percent from 3.4 percent the previous year.
Rising expense ratios continued to undermine the reported ROE figures for the Subset which, using the 2007 expense ratio as a base resulted in a 2.5 percent reduction in reported ROE, an increase from 2.4 percent in the previous year.
John Cavanagh, global CEO of Willis Re, said: “The continued challenging conditions of the market further impacts pressure on margins. However buyers can take comfort from the fact that the market balance sheet and headline figures remain robust in the face of persistent market softening due to continued reasonable net income and measured capital management strategies.”
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