Reinsurance market report

Results for full-year 2019

April 2020

Cover Title 26/29

45 Light Black
Cover Subtitle 12/15 — 65 Medium Black
 Reinsurance Market Report – Full Year 2019

Contents
Key findings ............................................................................................................................................. 1
At a glance .............................................................................................................................................. 2
Capital.................................................................................................................................................. 2
Underlying RoE for the SUBSET ......................................................................................................... 3
Combined ratio for the SUBSET ......................................................................................................... 4
Expenses for the SUBSET .................................................................................................................. 5
Investment yield for the SUBSET ........................................................................................................ 5
Capital ..................................................................................................................................................... 6
Total reinsurance dedicated capital ..................................................................................................... 6
INDEX capital ...................................................................................................................................... 7
Return of capital .................................................................................................................................. 9
Return on equity .................................................................................................................................... 11
Underwriting performance ..................................................................................................................... 13
Premium volumes .............................................................................................................................. 13
Combined ratios ................................................................................................................................ 14
Prior year loss development .............................................................................................................. 17
Catastrophe losses ............................................................................................................................ 20
Expense ratios ................................................................................................................................... 22
Investment performance ....................................................................................................................... 23
Appendix 1 ............................................................................................................................................ 25
Methodology ...................................................................................................................................... 25
Appendix 2 ............................................................................................................................................ 26

April 2020
Reinsurance Market Report – Full Year 2019

Key findings
Welcome to the 11th semi-annual publication of Willis Re’s Reinsurance market report which tracks
the capital and profitability of the global reinsurance industry.
Global reinsurance dedicated capital totalled USD 605B as of the end of 2019. This is a robust 15%
increase from a re-stated USD 526B at year-end 2018(1). As seen at the half-year stage, strong
investment markets were the main driver of the industry’s capital growth. Alternative capital remained
fairly stable, contracting only 3%.
Over the past five years, and not counting the impact of our 2018 restatement, we calculate that the
industry’s capital base has grown at an average annual pace of 4%.
Year-to-date 2020 much of this expansion will have unwound, due to the steep sell-off in equity and
corporate bond markets. During March and April 2020 there have so far been significant swings in
the investment markets, resulting in impacts to the global reinsurance capital base ranging from -5%
to as much as -20%.
Focusing on the INDEX(2) companies, which contribute the largest component of the industry’s capital:
■ INDEX companies’ capital grew 19% to USD 496B (FY 2018 re-stated: USD 416B), which
was entirely attributable to unrealised investment appreciation plus investment gains
recognised within net earnings.
■ The appreciation of National Indemnity’s large equity investment portfolio accounted for fully
60% of this growth. Excluding that, INDEX growth was 8%.
Drilling further into profitability, for the SUBSET(2) of companies within the INDEX that provide the
relevant disclosure:
■ The reported combined ratio for the SUBSET increased in 2019, from 99.2% to 100.6%.
■ The support to combined ratios and earnings from reserve releases continues to reduce. In
2019, the benefit to the SUBSET combined ratio reduced from 4.6% to 2.3%.
■ On an underlying basis (normalising nat cats and stripping out reserve releases), the
underlying combined ratio was 103.1%. This metric has been gently increasing every year
going back to 2013, including a small deterioration versus 102.3% in 2018.
■ Given low and often negative interest rates, reinsurers need to be earning a combined ratio
well below 100% to achieve an adequate RoE. Price increases began to accelerate in a
number of market segments in 2019, but a 103% starting point shows the large gap the
industry needs to close in order to restore profitability.
■ On the other hand, investment yields in 2019 were substantially augmented by investment
gains. The running investment yield (ie bond coupons, equity dividends, etc.) held roughly
stable at 2.9%, but gains added a further 1.5% to take the all-in yield to 4.4%.
■ Given reinsurers’ strong gearing to investments, these gains had a significant impact on RoE.
The average RoE for SUBSET companies expanded strongly in 2019, from 4.2% to 9.7%.
■ On an underlying basis, however, the SUBSET’s RoE remains low. Normalising reported
RoEs for nat cat losses and stripping out reserve releases, we put the underlying RoE ex-
investment gains at 3.2%. This is a further decline versus 2018’s already low 4.3% and
remains well below the industry’s cost of capital.

(1) We introduced a change in methodology with our half-year 2019 report which included a broader definition of capital, and have additionally
conducted our annual review of constituents with this report. See Appendix 1 for details on our methodology.
(2) INDEX relates to those companies listed within Appendix 2 of this report. SUBSET is defined as those companies that make the relevant
disclosure in relation to nat cat losses and prior year reserve releases. Appendix 2 also identifies the SUBSET companies.

April 2020 1
 Reinsurance Market Report – Full Year 2019

At a glance
Capital
Total industry capital grew robustly in 2019
Total reinsurance dedicated capital (USD billions)(3)

700
605
600
526 91
486 18
500 449 461 93
435 427 88 496
93 17
400 65 75
70 27 416
26 27 30 33
371
300 344 330 344 335

200

100

0
2014 2015 2016 2017 2018 2018 (re- FY 2019
stated)

INDEX Major regional and local reinsurers + pro-rated portion of capital within major groups Alternative Capital

Growth was attributable to INDEX capital, which was fuelled by investment gains
Capital analysis for the INDEX (USD billions)

550

500
19 4 496

450 48
32 (24)

20 416 2
400
61
National
350 Indemnity
335
300

250
Shareholders' HY 2019 FY 2019 Adjusted New reinsurer Net income Buy backs / Unrealised Other Total capital
equity brought change in change in opening dividends investment (including FX carried
forward methodology constituents capital appreciation movement) forward

(3) We have re-stated year-end 2018 capital from USD 461B to USD 526B, to allow for a change in methodology introduced with our HY 2019
report and to allow for our annual review of constituents. The former adds USD 61B to capital and the latter adds USD 20B.

2 April 2020
Reinsurance Market Report – Full Year 2019

Underlying RoE for the SUBSET

Strong RoE due to investment gains; excluding gains underlying RoE declined slightly to 3.2%
RoE analysis for the SUBSET(4)

16%
14%
12% 4.4% 4.5%
10%
1.2%
8% 2.8% 3.5%
5.3% 5.2%
6% 2.3% Investment 5.2%
8.2% 2.0% gains
4%
2% 4.5% 4.5% 4.3% 4.5%
3.2%
1.4% Investment
0% gains
-0.3% -0.3%
-2%
Nat cat loss

Nat cat loss

Nat cat loss

Reported ROE

Nat cat loss - normalised

Underlying ROE

Reported ROE

Nat cat loss - normalised

Underlying ROE

Reported ROE

Nat cat loss - normalised

Underlying ROE
Prior year development

Prior year development

Prior year development

2017 2018 2019

Underlying ex-gains RoE still in gentle decline, and well below the industry’s cost of capital
RoE for the SUBSET(5)
14%

11.6%
12% 11.3%

10.2%
9.7%
10%
8.2%
8% 7.2% 8.4%

6.3%

6%
4.3% 4.5% 4.5% 4.5%
4.2%
4% 3.2%
4.3%

2% 1.4%

0%
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Reported RoE for the SUBSET Underlying RoE for the SUBSET
Reported RoE for the SUBSET, excluding investment gains/losses Underlying RoE for the SUBSET, excluding investment gains/losses
WACC

(4) Note that we have slightly revised the impact of normalised nat cats on RoE and have restated prior-year underlying RoEs. As originally
reported, FY 2018’s underlying RoE was 2.7%.
(5) S&P WACC (weighted average cost of capital) figures. For FY 2018, data labels relate to the dotted lines, ie RoEs excluding investment
gains/losses.

April 2020 3
 Reinsurance Market Report – Full Year 2019

Combined ratio for the SUBSET

Reported and underlying combined ratios increased in 2019
Reported and underlying combined ratio for the SUBSET(6)

110%
107.4%

105%

100.9% 103.1%
102.3%
100% 101.0%
99.9% 100.9% 100.6%
99.2%
98.1%
95%

92.9%
90%
90.7%
90.3% 89.3%

85%
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Reported combined ratio for the SUBSET Underlying combined ratio

Less support from reserve releases

Combined ratio detail for the SUBSET

FY FY FY FY FY FY FY
SUBSET
2013 2014 2015 2016 2017 2018 2019
Reported combined ratio 90.3% 90.7% 89.3% 92.9% 107.4% 99.2% 100.6%

Remove prior year development 6.2% 5.6% 6.7% 6.3% 5.3% 4.6% 2.3%

Accident year combined ratio 96.5% 96.3% 96.0% 99.2% 112.7% 103.8% 102.9%

Strip out nat cat loss -4.8% -2.8% -1.5% -4.7% -18.1% -8.6% -8.1%
Ex-nat cat accident year combined
91.7% 93.5% 94.5% 94.5% 94.6% 95.2% 94.9%
ratio
Add in normalised nat cat loss 6.4% 6.4% 6.4% 6.4% 6.4% 7.1% 8.2%

Underlying combined ratio 98.1% 99.9% 100.9% 100.9% 101.0% 102.3% 103.1%

(6) The normalised nat cat loss and the underlying combined ratio metrics were new in our HY 2019 report and the full-year figures are being
shown for the first time in this report. We replace actual nat cats with their five year moving average (measured on a full-year basis).

4 April 2020
Reinsurance Market Report – Full Year 2019

Expenses for the SUBSET

Robust premium growth outpaced expense growth in 2019, bringing the expense ratio down
Weighted average expense ratio for the SUBSET

34% 33.2%
33.1%
33.0%
33% 32.8%

33%
32.1% 32.1%
32.0%
32% 31.8%

32% 31.2%

31%

31%

30%
2013 2014 2015 2016 2017 2018 2019

Revised methodology As originally reported

Investment yield for the SUBSET

Overall investment yield boosted by gains (both realised and unrealised)
Investment yield for the SUBSET(7)
5%

4%
1.5%

3%

2%

2.8% 2.9%
1%

0%
-0.1%

-1%
FY 2018 FY 2019

Running yield Gains yield

(7) Running yield captures items such as bond coupons, equity dividends and interest income.

April 2020 5
 Reinsurance Market Report – Full Year 2019

Capital
Total reinsurance dedicated capital
Total industry capital grew robustly in 2019
Chart 1: Total reinsurance dedicated capital (USD billions) (8)

700
605
600
526 91
486 18
500 449 461 93
435 427 88 496
93 17
400 65 75
70 27 416
26 27 30 33
371
300 344 330 344 335

200

100

0
2014 2015 2016 2017 2018 2018 (re- FY 2019
stated)

INDEX Major regional and local reinsurers + pro-rated portion of capital within major groups Alternative Capital

■ Global reinsurance dedicated capital totalled USD 605B as of the end of 2019. This is a
robust 15% increase from a re-stated USD 526B at year-end 2018(9).
■ Over the past five years, and not counting the impact of our 2018 restatement, we calculate
that the industry’s capital base has grown by 22%, equivalent to an average annual pace of
4%.
■ INDEX companies’ capital grew 19% to USD 496B (FY 2018 re-stated: USD 416B). This was
partly offset by a modest 3% contraction in alternative capital. This drop was primarily due to
loss deterioration from 2017-18 nat cats. While some investors had outflows of capital in
2019, others with different strategies had quite significant inflows.

(8) We have re-stated year-end 2018 capital from USD 461B to USD 526B, to allow for a change in methodology introduced with our HY 2019
report and to allow for our annual review of constituents. The former adds USD 61B to capital and the latter adds USD 20B.
(9) We introduced a change in methodology with our half-year 2019 report which included a broader definition of capital, and have additionally
conducted our annual review of constituents with this report. See Appendix 1 for details on our methodology.

6 April 2020
Reinsurance Market Report – Full Year 2019

INDEX capital
Growth was attributable to INDEX capital, which was fuelled by investment gains
Chart 2: Capital analysis for the INDEX (USD billions)

550

500
19 4 496

450 48
32 (24)

20 416 2
400
61
National
350 Indemnity
335
300

250
Shareholders' HY 2019 FY 2019 Adjusted New reinsurer Net income Buy backs / Unrealised Other Total capital
equity brought change in change in opening dividends investment (including FX carried
forward methodology constituents capital appreciation movement) forward

■ As seen at the half-year stage, strong investment markets were the main driver of the
industry’s capital growth.
■ This is best illustrated in the waterfall Chart 2 of INDEX companies’ capital development. As
well as strong unrealised investment appreciation, totalling USD 67B, investment gains also
accounted for over half of net income (as discussed below in the RoE section). Unrealised
investment appreciation plus gains recognised within net income accounted for the entirety of
the 19% growth in INDEX capital.
■ Fully 60% of the growth came from the USD 48B appreciation of National Indemnity’s large
equity investment portfolio and excluding that, INDEX growth was 8%.

April 2020 7
 Reinsurance Market Report – Full Year 2019

National Indemnity led the growth in capital, due to strong gearing to equity markets
Chart 3: Movement in capital reported as at FY 2019 for the INDEX constituents(10)

36.9%
32.9%
40%
35%
22.8%
21.7%

30%
20.7%
19.8%
18.6%
18.4%
17.4%
16.7%
25%

15.1%
14.7%
14.6%
14.2%
12.8%
11.7%
11.7%
20%

11.4%
10.0%
9.8%
15%

6.6%
6.6%
6.2%
6.1%
10%

2.8%
2.6%
1.7%
5%
0%

-1.9%
-5%

-3.8%
-10%

■ National Indemnity also led its peers with 37% growth in its capital base in 2019. Only two
companies saw a reduction in capital in 2019 – Great West Lifeco and Sirius, with the former
deliberate taking down its capital base through a large dividend and share buy-back.

(10) Excludes companies who have not yet reported FY 2019.

8 April 2020
Reinsurance Market Report – Full Year 2019

Return of capital
Reinsurers continue to pay out the vast majority of net income
Chart 4: Return of capital (as percent of opening shareholders’ equity) and payout ratio for the INDEX

8% 140%
% of opening shareholders’ equity

7% 120%
130%
6%

% of net earnings
100%
5%
61% 80%
4% 86%
77% 78% 60%
3%
62% 40%
2%
1% 20%
0% 0%
2014 2015 2016 2017 2018 2019
Dividends / equity Share buy-backs / equity Total payout / net earnings

■ Last year’s strong capital growth was achieved despite reinsurers continuing to pay out
significant percentages of both capital and earnings in the form of dividends and share buy-
backs.
■ In 2019 INDEX companies paid out USD 24B, or 6.4% of their opening shareholders’ equity,
mainly in the form of dividends. This was the highest payout in absolute terms and second-
higest in percentage terms going back to 2014.
■ The sector’s strong earnings means that the payout as a percentage of net income dropped in
2019, but to a still high 77%.

April 2020 9
 Reinsurance Market Report – Full Year 2019

A number of reinsurers paid back more than 5% of their capital bases

Chart 5: Return of capital (as percent of opening shareholders’ equity) for the INDEX constituents

14.9% FY 2019
16% 14.6% FY 2018

14%

12%
9.7%
9.0%
8.5%

10%
7.1%

8%
6.2%
6.0%
5.5%
5.5%
4.7%

6%
4.4%
3.3%
3.2%
3.1%
3.0%
2.8%
2.6%
2.5%
2.5%
4%

1.9%
1.7%
1.3%
1.2%
2%

0.3%
0.0%
0.0%
0.0%
0.0%
0%

■ Great West Lifeco and IRB each paid out nearly 15% of their opening shareholders’ equity as
either dividends or buy-backs, and the capital returned in 2019 by most of the reinsurers in
our INDEX exceeded their 2018 payouts.

In the remainder of the report we focus on our SUBSET constituents.

10 April 2020
Reinsurance Market Report – Full Year 2019

Return on equity
Strong RoE due to investment gains; excluding gains underlying RoE declined slightly to 3.2%
Chart 6: RoE analysis for the SUBSET(11)

16%
14%
12% 4.4% 4.5%
10%
1.2%
8% 2.8% 3.5%
5.3% 5.2%
6% 2.3% Investment 5.2%
8.2% 2.0% gains
4%
2% 4.5% 4.5% 4.3% 4.5%
3.2%
1.4% Investment
0% gains
-0.3% -0.3%
-2%
Nat cat loss

Nat cat loss

Nat cat loss

Underlying ROE

Underlying ROE
Reported ROE

Nat cat loss - normalised

Reported ROE

Nat cat loss - normalised

Underlying ROE

Reported ROE

Nat cat loss - normalised

Prior year development

Prior year development

Prior year development

2017 2018 2019

Underlying ex-gains RoE still in gentle decline, and well below the industry’s cost of capital
Chart 7: RoE for the SUBSET(12)
14%

11.6%
12% 11.3%
10.2%
9.7%
10%
8.2%
8% 7.2% 8.4%
6.3%

6%
4.3% 4.5% 4.5% 4.5%
4.2%
4% 3.2%
4.3%

2% 1.4%

0%
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

Reported RoE for the SUBSET Underlying RoE for the SUBSET
Reported RoE for the SUBSET, excluding investment gains/losses Underlying RoE for the SUBSET, excluding investment gains/losses
WACC Underlying RoE for the SUBSET, as previously published

(11) Note that we have slightly revised the impact of normalised nat cats on RoE and have restated prior-year underlying RoEs. As originally
reported, FY 2018’s underlying RoE was 2.7% versus the 4.0% shown here.
(12) S&P WACC (weighted average cost of capital) figures. For FY 2018, data labels relate to the dotted lines, ie RoEs excluding investment
gains/losses.

April 2020 11
 Reinsurance Market Report – Full Year 2019

■ The average RoE for SUBSET companies expanded strongly in 2019, from 4.2% to 9.7%.
However, this is entirely explained by a high level of investment gains. Excluding gains, the
RoE was stable at 4.5%.
■ Going a step further, and normalising reported RoEs for nat cat losses (replacing the actual
2019 impact with the five-year moving average) and stripping out reserve releases, we put the
underlying RoE at 8.4%. Removing the impact of investment gains, the underlying RoE was
3.2%. This is a further decline versus 2018’s already low 4.3%.
■ As discussed below, a principle driver of this underlying drop was a slightly higher underlying
combined ratio.
■ With this low underlying RoE, the SUBSET companies continue in aggregate to generate
shareholder returns that are materially below their weighted average cost of capital (WACC).
S&P puts the reinsurance industry’s WACC at 6.5-7.5%.

Strongest RoEs for the US/Bermudans, who recorded particularly high investment gains
Chart 8: Reported RoE for the SUBSET constituents(13)
17.8%

16.5%

FY 2019
15.3%

14.6%

13.6%

13.6%

13.1%

20% FY 2018
11.9%

11.8%

10.5%

10.4%
FY 2019 SUBSET
15% 9.5%

6.9%
9.7%

6.1%
10%

2.5%
5%

0%

-5% -0.5%

-10% -2.8%
-15% -9.0%
-20%

-25%

■ Looking at individual company all-in RoEs, a number of reinsurers achieved RoEs well into
the teens. This was particularly the case with the US and Bermudan reinsurers where, under
US GAAP, unrealised gains on equities flow through the P&L.

(13) RoEs are based on ‘all-in’ net income. They do not necessarily match the ‘headline’ RoEs reported by the companies as these are
sometimes struck on an operating net income basis.

12 April 2020
Reinsurance Market Report – Full Year 2019

Underwriting performance
Premium volumes
Double-digit premium growth reported by a number of SUBSET constituents
Chart 9: 2019 change in relevant(14) net earned premium (USD basis) for the SUBSET constituents

FY 2019
68.9%

80%
FY 2019 SUBSET
70%

60%

50%

40%
19.8%

30%
17.6%

16.3%

14.2%

12.7%

12.4%

20%
9.9%

9.6%

6.8%

6.6%

11.0%
4.8%

4.1%

10% 2.0%

0%
-0.1%

-0.1%

-1.3%

-2.7%
-10%

■ A number of SUBSET companies reported premium growth well into the double digits, with
average growth across the group of 11%.
■ Renaissance Re’s 69% growth was driven large measure by its Tokio Millenium Re
acquisition.
■ Swiss Re attributes its strong growth to an increased volume of large transactions and growth
in the nat cat line of business.

(14) Net earned premiums relate to the reinsurance segment if disclosure is available, or otherwise to the consolidated group. Appendix 1
explains in more detail.

April 2020 13
 Reinsurance Market Report – Full Year 2019

Combined ratios
Reported and underlying combined ratios increased in 2019
Chart 10: Reported and underlying combined ratio for the SUBSET(15)

110%
107.4%

105%

100.9% 103.1%
102.3%
100% 101.0%
99.9% 100.9% 100.6%
99.2%
98.1%
95%

92.9%
90%
90.7%
90.3% 89.3%

85%
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Reported combined ratio for the SUBSET Underlying combined ratio

Less support from reserve releases

Chart 11: Combined ratio detail for the SUBSET

FY FY FY FY FY FY FY
SUBSET
2013 2014 2015 2016 2017 2018 2019
Reported combined ratio 90.3% 90.7% 89.3% 92.9% 107.4% 99.2% 100.6%

Remove prior year development 6.2% 5.6% 6.7% 6.3% 5.3% 4.6% 2.3%

Accident year combined ratio 96.5% 96.3% 96.0% 99.2% 112.7% 103.8% 102.9%

Strip out nat cat loss -4.8% -2.8% -1.5% -4.7% -18.1% -8.6% -8.1%
Ex-nat cat accident year combined
91.7% 93.5% 94.5% 94.5% 94.6% 95.2% 94.9%
ratio
Add in normalised nat cat loss 6.4% 6.4% 6.4% 6.4% 6.4% 7.1% 8.2%

Underlying combined ratio 98.1% 99.9% 100.9% 100.9% 101.0% 102.3% 103.1%

(15) The normalised nat cat loss and the underlying combined ratio metrics were new in our HY 2019 report and the full-year figures are being
shown for the first time in this report. We replace actual nat cats with their five year moving average (measured on a full-year basis).

14 April 2020
Reinsurance Market Report – Full Year 2019

■ The reported combined ratio for the SUBSET increased in 2019, from 99.2% to 100.6%.
■ Replacing actual 2019 nat cats with a normalised level (the five year moving average) and
stripping out reserve releases, we calculate the underlying combined ratio to be 103.1%.
■ The underlying combined ratio has been gently increasing every year going back to 2013, and
the full-year 2019 increase reverses what had been a small improvement at the half-year
stage.
■ Given low and often negative interest rates, reinsurers need to be earning a combined ratio
well below 100% to achieve an adequate RoE.
■ Price increases began to accelerate in a number of market segments in 2019, but a 103%
starting point shows the large gap the industry needs to close in order to restore profitability.

Widely varying reported combined ratio performances in 2019 vs 2018

Chart 12: Reported combined ratios for the SUBSET constituents

FY 2019
FY 2018
110.8%

109.1%

115% FY 2019 SUBSET

107.4%

104.0%

103.2%

103.1%

110%
101.2%

101.0%

100.9%

100.3%

99.0%

105%
98.2%

100.6%
96.9%

96.5%

95.5%

94.9%

100% 92.3%

95%

90%
80.9%

85%

80%

April 2020 15
 Reinsurance Market Report – Full Year 2019

Few companies achieved underlying combined ratios below 100% in 2019

Chart 13: Underlying combined ratio for the SUBSET constituents

FY 2019
121.3%

FY 2018
125% FY 2019 SUBSET

120%
109.2%

107.9%

107.4%

106.7%
115%

105.0%

104.8%

103.7%

102.0%

101.3%

100.7%
110%

99.8%
103.1%

98.3%

97.6%

97.5%

97.2%
105%

96.5%
100%

88.7%
95%
90%
85%
80%

■ Several individual companies reported combined ratios significantly above 100%, with reserve
increases a frequent driver (more on this below).
■ On an underlying basis, over half of the 18 SUBSET companies recorded combined ratios
above 100%.

16 April 2020
Reinsurance Market Report – Full Year 2019

Prior year loss development

Support from reserve releases continues to decline
Chart 14: Prior year development impact on combined ratio for the SUBSET (positive number =
benefit)(16)

8%

6.7%
7%
6.2% 6.3%

6% 5.6%
5.3%

5% 4.6%

4%

3% 2.3%

2%

1%

0%
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

■ The support to combined ratios and earnings from reserve releases continues to reduce. In
2019, the benefit to the SUBSET average combined ratio decreased from 4.6% to 2.3%.

(16) Positive number indicates a favourable prior year impact.

April 2020 17
 Reinsurance Market Report – Full Year 2019

Continued reduction in aggregate reserve releases

Chart 15: Prior year development for the SUBSET (positive number = benefit)(17)

8,000 7,631 7,885 100%

7,385
6,853 6,861 6,837
7,000 6,472

6,000 5,424 75%

5,303
5,000
4,357
4,000 50%

3,000 2,516
1,962
2,000 25%

1,000 534

0 0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 HY HY
2018 2019

Aggregate amount of PYD (USD M) PYD as % pre-tax profit

■ As a percentage of group pre-tax profit, reserve releases average 13% for the SUBSET in
2019, the lowest ratio going back to 2009.

(17) Aggregate prior year reserve release calculated before tax.

18 April 2020
Reinsurance Market Report – Full Year 2019

Much reduced reserve releases for most of the companies

Chart 16: Prior year development impact on combined ratio for the SUBSET constituents (positive
number = benefit)

35% FY 2019
FY 2018
30% FY 2019 SUBSET
20.9%

25%

20%
14.1%

15%
7.2%

6.5%

10%
5.6%

4.5%

3.6%

3.0%

1.9%

1.1%
1.1%
5%

0.9%

0.8%
2.3%

0%

-0.3%
-5%

-3.5%

-4.4%

-7.2%

-8.0%
-10%

■ More companies are also now posting net adverse reserve development. In 2019, five of the
18 SUBSET companies recorded a net reserve increase, led by ARGO and Sirius with 7-8
percentage point impacts on the combined ratio.

April 2020 19
 Reinsurance Market Report – Full Year 2019

Catastrophe losses
2019 saw below-average nat cats
Chart 17: Nat cat impact on combined ratio for SUBSET

30%

25.8%
24.8%
25%

20%
18.1%

15%

10% 8.6%
8.1%

4.8% 4.7%
5%
2.8%
1.5%

0%
2005 … 2011 … 2013 2014 2015 2016 2017 2018 2019

Nearly all companies had a reduced nat cat load in 2019

Chart 18: Nat cat impact on combined ratio for SUBSET constituents

FY 2019
FY 2018
FY 2019 SUBSET
25%

20%
13.5%

12.5%

12.4%

11.6%

10.7%

15%
10.4%

10.2%

10.1%

10.0%

7.4%

6.9%

10% 8.1%
5.9%
5.4%

5.0%

4.1%

3.8%

3.1%

1.9%

5%

0%

20 April 2020
Reinsurance Market Report – Full Year 2019

■ Research from both Munich Re and Swiss Re indicate that insured nat cat losses (at both the
insurance and reinsurance level) were below their ten year averages. Munich Re, for
instance, puts the 2019 insured loss at USD 52B, versus the ten year average of USD 65B.
Similarly, Swiss Re calculates insured losses to be USD 56B versus the ten year average of
USD 75B.
■ On our calculations, the average nat cat load for the SUBSET equates to 8.1 percentage
points on the combined ratio, close to the 8.2% five year average. Noteable events in the
year were typhoons Hagibis and Faxai in Japan and hurricane Dorian in the Atlantic.

April 2020 21
 Reinsurance Market Report – Full Year 2019

Expense ratios
Robust premium growth outpaced expense growth in 2019, bringing the expense ratio down
Chart 19: Weighted average expense ratio for the SUBSET

34% 33.2%
33.1%
33.0%
33% 32.8%

33%
32.1% 32.1%
32.0%
32% 31.8%

32% 31.2%

31%

31%

30%
2013 2014 2015 2016 2017 2018 2019

Revised methodology As originally reported

■ On a like-for-like basis(18), the SUBSET expense ratio dropped slightly, from 32.1% in 2018 to
31.8%. The absolute amount of expenses grew by 10%, but this was slightly outpaced by the
SUBSET’s premium growth of 11%.

(18) The revised methodology we introduced with our half-year 2019 report has produced a discontinuity in our time series of SUBSET expense
ratios. Several of the companies removed from our constituent list, partlcularly Lloyd’s companies, have high expense ratios. Therefore, our
‘revised methodology’ expense ratios for 2017 and 2018 are approximately one percentage point lower than the ratios we originally reported.

22 April 2020
Reinsurance Market Report – Full Year 2019

Investment performance
Overall investment yield boosted by gains (both realised and unrealised)
Chart 20: Investment yield for the SUBSET(19)

5%

4%
1.5%

3%

2%

2.8% 2.9%
1%

0%
-0.1%

-1%
FY 2018 FY 2019

Running yield Gains yield

A number of US / Bermuda companies in particular recorded very high yields

Chart 21: Investment yield for the SUBSET constituents

12%

Total 2019 yield

10%
Total 2018 yield

8%

6%

4%

2%

0%

(19) Running yield captures items such as bond coupons, equity dividends and interest income.

April 2020 23
 Reinsurance Market Report – Full Year 2019

■ Similar to the picture seen at the half-year stage, investment yields in 2019 were substantially
augmented by investment gains. The running investment yield (ie bond coupons, equity
dividends, etc) held roughly stable at 2.9%, but gains added a further 1.5% to take the all-in
yield to 4.4%. Gains were a small net negative in 2018, taking that year’s all-in yield to 2.7%.
■ Given reinsurers’ strong gearing to investments, these gains had a significant impact on RoE.
As mentioned in the RoE section above, investment gains accounted for more than half of the
SUBSET’s RoE in 2019.
■ The US and Bermudan reinsurers in particular recorded high total investment yields (ie
running plus gains). As mentioned above, this is attributable to a difference between US
GAAP and IFRS accounting whereby, under US GAAP, unrealised gains on equities flow
through the P&L.
■ In addition to the yields shown here and their impact on RoEs and net earnings, appreciation
in investments also boosted reinsurers’ capital via growth in unrealised gains. For the INDEX
companies, as shown in the capital waterfall chart on page 7, this impact was actually greater
than the support from net income.

24 April 2020
Reinsurance Market Report – Full Year 2019

Appendix 1
Methodology
In our HY 2019 report we broadened our definition of capital to include subordinated debt and minority
interests. We also introduced the rules below to choose the constituents of our capital calculation for
the traditional reinsurance market. As per Chart 1, these components are the INDEX, Major regional
and local reinsurers, and pro-rated portion of capital within major groups.
We review and adjust our constituents annually based on year-end data.
The constituents of these components within this report have been selected by applying the rules
below to year-end 2019 disclosures. We also restate the prior year capital position. The impact on
the previous year’s capital position from these constituent changes is the USD 20 billion ‘FY 2019
change in constituents’ shown in Chart 1.

INDEX
Capital at least USD 1B or total group NWP at least USD 1B, and reinsurance NWP at least 10% of
group NWP.

Major regional and local reinsurers(20)

Capital at least USD 250M or total group NWP at least USD 250M, and reinsurance NWP at least
10% of group NWP.

Pro rata of composites(21)

In the case of large groups whose reinsurance NWP is less than 10% of group NWP, we take a pro-
rated portion of capital which must be at least USD 250M.

Segment versus group data for the SUBSET

In our combined ratio analysis, we use P&C reinsurance segment combined ratios for those SUBSET
reinsurers which provide the disclosure. Otherwise, we use group combined ratios. In calculating the
SUBSET averages we weight these combined ratios according to the appropriate segment or group
net earned premium. In the section on premium volumes we show the growth rate in this ‘relevant
NEP’. In Appendix 2, premium income is on a written basis and relates to the entire group.

(20) Applies to constituents which don’t qualify for the INDEX.

(21) Applies to constituents which don’t qualify for the INDEX or Major regional and local reinsurers.

April 2020 25
 Appendix 2
FY 2019 results summary for the Willis Reinsurance Index

Appendi x 2
Group 2019 results table (USD millions)
Consolidated data Total capital Net written premium Net income Combined ratio
unless otherwise Notes
FY 2017 FY 2018 FY 2019 ∆ FY 2017 FY 2018 FY 2019 ∆ FY 2017 FY 2018 FY 2019 ∆ FY 2017 FY 2018 FY 2019 ∆
stated
FY FY FY FY
Alleghany (1) 8,621 7,862 8,981 14.2% 4,966 5,048 5,752 13.9% 90 40 858 2069.5% 106.9% 105.4% 100.9% -4.5%
Arch Capital (1) 10,040 10,231 12,260 19.8% 4,961 5,347 6,039 12.9% 567 714 1,595 123.5% 99.9% 94.5% 94.9% 0.4%
ARGO 2,076 2,004 2,039 1.7% 1,654 1,766 1,754 -0.6% 50 64 -8 -113.2% 107.2% 97.9% 109.1% 11.2%
Aspen (1) 2,929 2,656 2,726 2.6% 2,213 2,082 2,428 16.6% -268 -147 -242 64.6% 125.1% 104.0% 103.1% -0.9%
Axis Capital (1) 5,341 5,030 5,964 18.6% 4,027 4,659 4,490 -3.6% -369 43 323 651.9% 107.1% 98.4% 101.2% 2.8%
CCR, France (2) 2,906 2,903 2,846 -2.0% 1,452 1,618 1,535 -5.1% 51 156 148 -5.1% 93.1% 95.1% 95.1% 0.0%
China Re 11,583 12,687 13,928 9.8% 14,934 17,292 19,513 12.8% 778 564 876 55.3% 104.0% 99.6% 101.3% 1.7%
Appendix 2

Convex (2) 0 0 1,800 0 0 0 0 0 0

DEVK Re (2) 1,965 2,335 2,289 -2.0% 2,296 2,554 2,423 -5.1% 0 46 44 -5.1% 97.3% 94.9% 94.9% 0.0%
Everest Re 8,606 8,140 9,370 15.1% 6,245 7,414 7,824 5.5% 469 104 1,009 874.8% 103.5% 108.8% 95.5% -13.3%
Fairfax 18,648 17,588 18,088 2.8% 9,984 12,431 13,836 11.3% 1,741 376 2,004 433.0% 106.6% 97.3% 96.9% -0.4%
Fidelis (2) 1,305 1,208 1,208 0.0% 409 492 492 0.0% 31 79 79 0.0% 85.9% 80.6% 80.6% 0.0%
General Re (5) 11,393 10,550 12,104 14.7% 886 1,346 1,716 27.5% 301 508 440 -13.5% 122.9% 110.2% 103.7% -6.5%
GIC India (3) 8,038 7,764 7,271 -6.3% 5,838 5,577 5,518 -1.1% 502 318 315 -1.1% 106.3% 105.9% 105.9% 0.0%
Great West Lifeco 21,142 20,152 19,770 -1.9% 26,114 27,355 18,469 -32.5% 1,755 2,387 1,878 -21.3%
Hamilton Re (2) 1,573 1,759 1,759 0.0% 346 378 378 0.0% 20 246 246 0.0% 135.8% 120.8% 120.8% 0.0%
Hannover Re (1) 12,942 12,635 15,250 20.7% 18,147 20,526 22,775 11.0% 1,081 1,250 1,437 15.0% 99.8% 96.5% 98.2% 1.7%
IRB Brazil 1,081 1,033 1,155 11.7% 1,269 1,393 1,594 14.4% 290 334 447 34.0% 86.3% 83.2% 80.0% -3.2%
Korean Re 2,025 2,010 2,132 6.1% 4,443 4,834 4,743 -1.9% 118 94 164 75.3% 98.3% 100.5% 100.0% -0.5%

26
Lancashire 1,304 1,262 1,388 10.0% 398 418 425 1.7% -71 38 118 215.2% 124.9% 92.2% 80.9% -11.3%
MAPFRE 13,365 11,814 12,599 6.6% 21,893 22,609 21,164 -6.4% 790 624 1,069 71.5% 98.1% 97.6% 97.6% 0.0%
Markel (1) 9,502 9,100 11,078 21.7% 4,418 4,788 5,412 13.0% 395 -128 1,790 -1496.8% 132.0% 113.0% 104.0% -9.0%
Milli Re 545 434 489 12.8% 1,162 1,029 1,052 2.3% 75 57 55 -5.1% 107.0% 124.0% 116.0% -8.0%
Munich Re (1) 37,210 34,565 38,621 11.7% 53,615 55,107 57,601 4.5% 423 2,725 3,049 11.9% 114.1% 99.4% 101.0% 1.6%
National Indemnity (5) 128,563 122,471 167,718 36.9% 24,031 27,956 26,985 -3.5% 2,080 10,139 9,198 -9.3% 103.8% 97.8% 98.6% 0.8%
Pacific LifeCorp (4) 13,704 13,072 16,055 22.8% 5,037 5,742 7,035 22.5% 1,365 913 725 -20.6%
Partner Re 6,816 6,588 7,340 11.4% 5,120 5,803 6,909 19.1% 264 -86 937 -1189.3% 99.3% 101.9% 100.3% -1.6%
QIC 2,717 2,633 2,806 6.6% 2,608 2,969 3,048 2.7% 114 177 179 0.8% 105.8% 101.3% 103.3% 2.0%
R&V Versicherung (2)(5) 2,581 2,461 2,412 -2.0% 3,116 3,261 3,094 -5.1% 159 114 108 -5.1% 104.6% 99.4% 99.4% 0.0%
Renaissance Re 4,391 5,045 5,971 18.4% 1,871 2,132 3,381 58.6% -222 227 749 229.3% 137.9% 87.6% 92.3% 4.7%
RGA (4) 10,688 9,569 12,720 32.9% 9,841 10,544 11,297 7.1% 1,822 716 870 21.5%
SCOR 10,130 9,280 9,856 6.2% 15,181 16,257 16,168 -0.6% 322 380 472 24.3% 103.7% 99.4% 99.0% -0.4%
Sirius 2,248 2,010 1,934 -3.8% 1,090 1,357 1,503 10.7% -150 -18 -47 161.3% 107.6% 103.1% 110.8% 7.7%
Swiss Re (1) 39,296 33,368 38,948 16.7% 32,316 34,042 39,649 16.5% 331 421 727 72.7% 111.5% 104.0% 107.4% 3.4%
Third Point Re 1,661 1,205 1,414 17.4% 639 558 623 11.5% 278 -318 201 -163.2% 107.7% 106.8% 103.2% -3.6%
Toa Re (3) 1,888 1,624 1,714 5.5% 2,147 2,239 2,284 2.0% 83 -64 -66 2.0% 96.5% 103.9% 103.9% 0.0%
Validus Re (2) 4,249 3,259 3,259 0.0% 2,045 1,701 1,701 0.0% 13 -104 -104 0.0% 104.2% 115.9% 115.9% 0.0%
WR Berkley (1) 6,179 6,387 7,317 14.6% 6,261 6,433 6,863 6.7% 549 641 682 6.4% 117.6% 106.4% 96.5% -9.9%
XL (1)(2) 13,838 11,636 11,636 0.0% 10,668 11,080 11,080 0.0% -310 -866 -866 0.0% 102.9% 108.6% 108.6% 0.0%
Index aggregate (6)(7) 443,088 416,329 496,214 19.2% 313,637 338,135 348,550 3.1% 15,515 22,760 31,458 38.2% 105.7% 100.0% 100.3% 0.3%
Subset aggregate (6)(7) 187,939 174,956 198,544 13.5% 173,105 186,168 203,431 9.3% 5,480 6,325 15,655 147.5% 108.9% 100.5% 100.6% 0.1%

NB : Shaded rows in the above summary denote SUBSET groups

Reinsurance Market Report – Full Year 2019

April 2020
Reinsurance Market Report – Full Year 2019

(1) Combined ratios are in respect of the P&C Reinsurance segment only.
(2) Due to lack of disclosure at the time of the report, total capital shown for FY 2019 is based on FY 2018 disclosure.
(3) Companies which have a March 31 financial year-end. Data for the year ended March 31 2019 is included in the column headed FY
2018 (and similar for prior years), and FY 2019 data is also based on year-end March 31 2019 disclosure.
(4) Figures for net premiums are net earned premiums, not net written premiums.
(5) Numbers are sourced from unconsolidated financial statements.
(6) Total of numbers reported, converted to USD at exchange rates prevailing at end of reporting period for total capital figures. For net
income and NWP figures, we use average exchange rates over the reporting period.
(7) Pre-FY 2019 aggregates shown in this appendix will not necessarily match the aggregates shown in body of report. In the body, prior
year figures have generally not been restated for changes in constituents. The figures here have been restated.

The information compiled in this report by Willis Towers Watson is compiled from third party sources which we consider
to be reliable. However we do not guarantee and are not responsible for its accuracy or completeness and no warranty
or representation of accuracy or completeness is given.

April 2020 27
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