Dedicated reinsurance capital falls 5% in 2018: Willis

Capital dedicated to the global reinsurance industry dropped 5% to $462 billion at year-end 2018, according to a report Tuesday from Willis Towers Watson PLC.

Shareholders’ equity of the 32 reinsurance companies tracked in the Willis Reinsurance Index decreased 10% to $335.7 billion, compared with growth of 8% in 2017, the report said.

While the shareholders’ equity figure declined, alternative capital grew by 6% in 2018 to $93 billion, Willis said.

Both the growth in shareholders equity in 2017 and the pull back in 2018 were driven by “investment market volatility. In 2018, falling equity markets and rising bond yields had a meaningful negative impact,” the report said.

The largest drop in shareholders equity among the index companies was recorded by Swiss Re Ltd. at 18.2%, while the largest gainer was Renaissance Re Ltd. at 14.9%, data showed.

Data for the index companies also shifted as a result of mergers and acquisitions, the report said, as Validus Holdings Ltd. and XL Group Ltd. left the index, “although this is partly offset as our total capital figure also includes pro-rated capital of these two companies’ acquirers, AIG and AXA,” Willis said.

Excluding this adjustment, for example, index company capital fell 6%, the report said.

For those companies in the index, the combined ratio improved substantially to 99.2% in 2018 from 107.4% in 2017.

Additional data shows that reinsurance industry capital has grown at a compound annual growth rate of 2% since 2014.

“Overall shareholders equity figures for the Index suffered a negative impact due to unrealized investment losses, owing to external factors largely beyond the control of risk carriers, as well as shareholder buy backs and dividends,” James Kent, global CEO for Willis Re, said in a statement released with the report.

A recent report from Aon PLC also tracked a drop in traditional capital against an increase in alternative capital.