Underlying results of reinsurers bleaker than reported

While the results as reported by reinsurers show a declining trend, the underlying results, taking into account average cat losses, show how tight profitability in the sector really is, according to the most recent Reinsurance Market Report by Willis Re.

The aggregate net income of reinsurers included in the Willis Reinsurance Index tracking major international reinsurers dropped to $26.6 billion in 2016 from $30.3 billion a year ago, the report shows.

The combined ratio for the Index based on company reports deteriorated to 94.4 percent compared to 91.4 percent over the period.

The reinsurance sector’s reported combined ratios have worsened despite being propped up with prior-year reserve releases and benefitting from below-average large claims.

The return on equity (ROE) dropped to 8.9 percent in 2016 from 9.3 percent in 2015.

But the situation appears even worse when looking at a subset of reinsurers which make more detailed disclosures and which reflect around 58 percent of the aggregate capital index.

The reported ROE of the reinsurers included in the subset, all publicly listed companies, fell to 8.2 percent in 2016 from 11.3 percent in 2014. After normalising the numbers for an estimated average 4 percent cat loss and adjusting for prior year development, the ROE for the subset drops to 3.3 percent for 2016 compared to 5.6 percent in 2014.

“The reality is that behind the figures that have been reported there are barely sustainable underlying results,” said James Vickers, chairman of Willis Re International at an April 20 Lloyd’s event.

This is just a snapshot of a longer report. To find out more about Vickers’ views on the reinsurance market and what companies are doing to protect profitability, please click here.

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