Results for full-year 2020

Reinsurance market report

April 2021
 Reinsurance Market Report – Full Year 2020

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 .................................................................................................................................... 12
Underwriting performance ..................................................................................................................... 15
Premium volumes .............................................................................................................................. 15
Combined ratios ................................................................................................................................ 16
Prior year loss development .............................................................................................................. 20
Detail on COVID losses ..................................................................................................................... 22
Catastrophe losses ............................................................................................................................ 23
Expense ratios ................................................................................................................................... 25
Investment performance ....................................................................................................................... 26
Appendix 1 - Methodology .................................................................................................................... 28
Appendix 2 - FY 2020 results detail for the INDEX .............................................................................. 29

April 2021
Reinsurance Market Report – Full Year 2020

Key findings
Welcome to the 13th 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 USD658b as of the end of 2020, with a growth rate of
7% over the restated 2019 base.1 Such a solid finish to 2020 would hardly have been expected earlier
in the year, as the COVID pandemic was gathering pace.
Investment markets remained strong in the second half of the year, and that was a main driver of the
improved reinsurance capital position. The much talked-about capital-raising – by both incumbents
and new entrants – helped as well, even though capital returns to shareholders far exceeded the
capital raised.
The 7% overall growth was powered by the INDEX2 companies, with alternative capital slipping
slightly, from USD91b to USD90b.
Focusing on the INDEX companies, which contribute over 80% of the industry’s capital:
■ The INDEX companies achieved an 8% increase in capital.
■ The strong investment markets in 2020 powered this growth, with unrealised investment
appreciation accounting for nearly 100% of the increase.
■ Despite regulatory restrictions on dividends and buy-backs, the INDEX companies still
returned USD26b to their shareholders, more than their USD23b of net income, more than the
USD24b returned in 2019, and larger than the USD10b of new capital raised. While many
reinsurers are clearly seeking to take advantage of the market’s firming conditions, the ability
to maintain healthy dividends is evidence of the industry’s robust capital position.
Drilling further into profitability, for the SUBSET of companies within the INDEX that provide the
relevant disclosure:
■ Premium growth was a robust 9%, aided by a strengthening pricing environment.
■ The reported combined ratio deteriorated materially in 2020, from 100.6% to 104.1%, due
entirely to the impact of COVID loss reserving. Reserve releases also provided less of a
benefit, continuing the decreasing trends of the past five years.
■ On an underlying basis3, the combined ratio improved noticeably, from 103.1% to 100.7%.
This is the first time since we began calculating this ratio in 2014 that it has improved on a
full-year basis. Pricing improvements, both at the underlying primary insurance and
reinsurance levels, are now being reflected. Reinsurers also benefitted to some extent from
the lower claims frequency seen in several lines of business, and expense ratios have also
improved.
■ The average ROE, whether measured on a reported or underlying basis, declined materially.
The reported ROE fell from 9.7% to 2.7%, and underlying4 from 3.2% to 1.3%.
■ The underlying deterioration was due to declining investment yields more than offsetting the
better underlying combined ratio.
■ It continues to be the case that underlying ROEs are tracking well below the industry’s cost of
capital.

1 We have re-stated year-end 2019 capital from USD 604b to USD 615b, following our annual review of constituents.
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.
3 The underlying basis replaces actual nat cat and COVID losses with a normalized cat load and strips out prior year reserve movements.
4 This is the underlying ROE excluding investment gains.

April 2021 1
 Reinsurance Market Report – Full Year 2020

At a glance
Capital
Solid growth in industry capital in 2020
Total reinsurance dedicated capital (USD billions)5

700 6.9% 658

604 615
600 90
526 91 91 20
486 18 18 548
500 449 93
435 427 507
88 496
75 17
400 65 70 27
26 30 416
27 371
300 344 330 344

200

100

0
2014 2015 2016 2017 2018 2019 2019 2020
(restated)

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

Capital growth driven by investment returns and new capital raising

Capital analysis for the INDEX (USD billions)6

600

5
550 8 15
23
(26) 23 548
2
11
500
507
496 National
Indemnity
450

400

350

300

250
2019 capital Change in 2019 capital New Net income Capital raise Buy backs / Unrealised Other 2020 capital
constituents (restated) reinsurers from dividends investment (including FX
incumbents appreciation movement)

5 We have re-stated year-end 2019 capital from USD 604b to USD 615b, following our annual review of constituents.
6 Change in constituents includes FY2019 late filers.

2 April 2021
Reinsurance Market Report – Full Year 2020

Underlying RoE for the SUBSET

Both the reported and underlying ROE declined significantly in 2020
RoE analysis for the SUBSET7

16%
14% Investment
gains
12% 4.4% 4.5%
9.7%
10% 8.4%
1.2%
8% 4.6% 5.2%
3.5% Investment
5.3% 5.2%
6% gains 5.2% 0.7% 4.8%
4.2% 2.0% 4.0%
4% 2.7% 3.3%
COVID losses 3.4%
2% 4.5% Investment 4.3% 4.5%
loss 3.2% 3.4%
1.3%
0%
-0.3% -0.3%
-2% -0.7%
Nat cat loss

Nat cat loss

Underlying ROE

Nat cat loss

Reported ROE

Reported ROE
Nat cat loss - normalised

Underlying ROE

Reported ROE

Nat cat loss - normalised

Nat cat loss - normalised

Underlying ROE
Prior year development

Prior year development

Prior year development

2018 FY 2019 FY 2020 FY

Total ROE including investment gains

The ROE trend continues to track down, and returns remain well below the industry’s cost of
capital
RoE for the SUBSET8

14%

11.6% 11.3%
12%
10.2%
9.7%
10%
8.2%
8.4%
8% 7.2%
6.3%
6%
4.5% 4.5% 4.5%
4.2% 4.3% 4.8%
4% 3.2%
4.3%
2.7%
2% 1.4%

1.3%
0%

-0.7%
-2%
2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY

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

7 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.
8 S&P WACC (weighted average cost of capital) figures.

April 2021 3
 Reinsurance Market Report – Full Year 2020

Combined ratio for the SUBSET

Reported combined ratio worsened, but underlying has started to improve
Reported and underlying combined ratio for the SUBSET

110%
107.4%

105%
104.1%
100.9% 103.1%
102.3%
100.7%
100% 101.0%
99.9% 100.9% 100.6%
99.2%
98.1%
95%

92.9%
90%
90.7%
90.3% 89.3%

85%
2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY
Reported combined ratio Underlying combined ratio

Deterioration in reported combined ratio entirely attributable to COVID losses

Combined ratio detail for the SUBSET9

2014 2015 2016 2017 2018 2019 2020

SUBSET
FY FY FY FY FY FY FY
Reported combined ratio 90.7% 89.3% 92.9% 107.4% 99.2% 100.6% 104.1%

Remove prior year development 5.6% 6.7% 6.3% 5.3% 4.6% 2.3% 1.5%

Accident year combined ratio 96.3% 96.0% 99.2% 112.7% 103.8% 102.9% 105.6%

Strip out nat cat loss -2.8% -1.5% -4.7% -18.1% -8.6% -8.1% -5.7%

Strip out COVID loss -8.2%

Ex-nat cat accident year
93.5% 94.5% 94.5% 94.6% 95.2% 94.9% 91.7%
combined ratio
Add in normalised nat cat loss 6.4% 6.4% 6.4% 6.4% 7.1% 8.2% 9.0%

Underlying combined ratio 99.9% 100.9% 100.9% 101.0% 102.3% 103.1% 100.7%

9 The normalized nat cat load is the five year moving average of the SUBSET’s nat cat losses, calculated on the basis of annual results.

4 April 2021
Reinsurance Market Report – Full Year 2020

Expenses for the SUBSET

Robust premium growth outpaced expense growth in 2020, bringing the expense ratio down
Weighted average expense ratio for the SUBSET 10

33.5% 33.1% 33.2%

33.0%
33.0% 32.8%
32.5% 32.1% 32.1%
32.0%
32.0% 31.8%
31.5% 31.2%
31.0%
30.5% 30.2%
30.0%
29.5%
29.0%
2013 2014 2015 2016 2017 2018 2019 2020

Revised methodology As originally reported

Investment yield for the SUBSET

Significant decline in running investment yield
Investment yield for the SUBSET11

5%

4%
1.5%

3% 1.2%

2%

2.9%
1% 2.2%

0%
2019 FY 2020 FY

Running yield Gains yield

10 The revised methodology we introduced with our half-year 2019 report 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.
11 Running yield captures items such as bond coupons, equity dividends and interest income.

April 2021 5
 Reinsurance Market Report – Full Year 2020

Capital
Total reinsurance dedicated capital
Solid growth in industry capital in 2020
Chart 1: Total reinsurance dedicated capital (USD billions)

700 6.9% 658

604 615
600 90
526 91 91 20
486 18 18 548
500 449 93
435 427 507
88 496
75 17
400 65 70 27
26 30 416
27 371
300 344 330 344

200

100

0
2014 2015 2016 2017 2018 2019 2019 2020
(restated)

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

■ Global reinsurance dedicated capital totalled USD658b as of the end of 2020, with a growth
rate of 7% over the restated 2019 base.12
■ Such a solid finish to 2020 would hardly have been expected earlier in the year, as the
COVID pandemic was gathering pace. By 30 June, however, a steep Q1 decline had already
lessened to a 3% reduction in global reinsurance capital, as reported in our half-year
Reinsurance Market Report.13
■ Investment markets remained strong in the second half of the year, and that was the main
driver of the improved reinsurance capital position. The much talked-about capital-raising –
by both incumbents and new entrants – helped as well, even though capital returns to
shareholders far exceeded the capital raised.
■ The 7% overall growth was powered by the INDEX companies, with alternative capital
slipping slightly, from USD91b to USD90b (although this was an improvement on the USD88b
as of the end of June 2020).
■ Since 2014, total reinsurance dedicated capital has grown at an average annual rate of 5%. 14

12 We have re-stated year-end 2019 capital from USD 604b to USD 615b, to allow for our annual review of constituents.
13 See HY2020 Reinsurance Market Report
14 This is not counting the effect of restatements; 2018 and subsequent have been boosted due to a change in methodology.

6 April 2021
Reinsurance Market Report – Full Year 2020

INDEX capital
Capital growth driven by investment returns and new capital raising
Chart 2: Capital analysis for the INDEX (USD billions)15

600

5
550 8 15
23
(26) 23 548
2
11
500
507
496 National
Indemnity
450

400

350

300

250
2019 capital Change in 2019 capital New Net income Capital raise Buy backs / Unrealised Other 2020 capital
constituents (restated) reinsurers from dividends investment (including FX
incumbents appreciation movement)

■ The INDEX companies, which by far are the largest the part of the reinsurance industry’s
capital base, achieved an 8% increase in capital, from a restated opening position of
USD507b to USD548b.
■ The biggest driver of this increase was growth in the value of the INDEX companies’
investments. Unrealised investment appreciation amounted to USD38b, with National
Indemnity alone accounting for USD23b. This USD38b was nearly 100% of the total USD40b
expansion in capital.
■ Despite COVID-related regulatory restrictions on dividends and buy-backs, the INDEX
companies still returned USD26b to their shareholders, more than their USD23b of net
income, and more than the USD24b returned in 2019.
■ This money handed back to shareholders also dwarfs the new capital raised – USD8b by
incumbents and USD2b by the new entrants qualifying for our INDEX (Conduit Re and
Vantage).
■ While many reinsurers are clearly seeking to grow into the market’s firming conditions, the
ability to maintain healthy dividends clearly speaks to the industry’s robust capital position.

15 Change in constituents includes FY2019 late filers.

April 2021 7
 Reinsurance Market Report – Full Year 2020

Highly diverse capital growth rates across companies

Chart 3: Movement in capital reported as at FY 2020 for the INDEX constituents16
72%

80%
61%

60%
27%

40%
25%
22%
16%
14%
13%
12%
11%
11%
20%

9%
8%
8%
8%
7%
6%
6%
6%
6%
2%
1%
0%

0%
-2%
-3%
-4%
-7%
-9%
-20%

-29%
-40%

■ The divergence in capital growth amongst the INDEX companies was particularly pronounced
in 2020.
■ At one extreme were Fidelis and Convex, followed by Ren Re and Lancashire, all of whom
raised a significant amount of capital relative to their pre-existing balance sheets.
■ At the other extreme was IRB, which had company-specific challenges in 2020. The 9% drop
at Swiss Re was attributable to its disposal of ReAssure as well as dividends and buy-backs
being significantly larger than net earnings.

16 Excludes companies who have not yet reported FY 2020.

8 April 2021
Reinsurance Market Report – Full Year 2020

Return of capital
Reinsurers have maintained a high level of payout, despite 2020’s low earnings and regulatory
restrictions
Chart 4: Return of capital (as percent of opening shareholders’ equity) and payout ratio for the INDEX

8% 140%
Pct of opening shareholders’ equity

130%
7% 120%
6% 111% 100%

Pct of net earnings

86%
5%
80%
4% 78%
77% 62% 60%
3% 61%
40%
2%

1% 20%

0% 0%
2014 2015 2016 2017 2018 2019 2020
Dividends / equity Share buy-backs / equity Total payout / net earnings

■ The INDEX companies’ return of capital to shareholders, as a percent of opening

shareholders’ equity, increased slightly last year. However, a significant contraction in buy-
backs led to a lower total payout.
■ The total payout in absolute terms increased slightly and, due to 2020’s lower level of
earnings, companies paid out more than they earned.

April 2021 9
 Reinsurance Market Report – Full Year 2020

Most companies were able to maintain payouts at a similar level to 2019

Chart 5: Return of capital (as percent of opening shareholders’ equity) for the INDEX constituents
16%

14%

12%

10%

8%

6%

4%

2%

0%

2019 FY 2020 FY

■ Several of the INDEX companies had made abnormally high shareholder payouts in 2019 that
did not recur in 2020. Most of the other companies were able to maintain payouts at a similar
level to 2019, measured as a percent of shareholders’ equity.
■ SCOR was a notable exception. While many regulators eased their stance on dividends as
2020 progressed, pressure from the French regulator persisted throughout the year, and
SCOR like most French (re)insurers was unable to pay a dividend. This has now eased, with
SCOR announcing a reinstatement of its annual dividend, payable in the first half of 2021.

10 April 2021
Reinsurance Market Report – Full Year 2020

A number of large capital raises, both in absolute and relative terms

Chart 6: The significant capital raises for INDEX constituents

2,000 USD m 80%

New
1,800 Reinsurers 70%
1,600 as a % of 2019 SHE
60%
1,400
1,200 50%
1,000 40%
800 30%
600
20%
400
200 10%
0 0%

■ Of the numerous capital-raises in 2020, Fidelis and Convex led the way in relative terms, both
growing their end-2019 shareholders equity (SHE) by more than 60%. They also ranked
highly in absolute terms, each raising USD1b.
■ New entrants Conduit Re and Vantage also entered the market, with their USD1b capital
raises being amongst the largest, including the incumbent raises.

April 2021 11
 Reinsurance Market Report – Full Year 2020

Return on equity
Both the reported and underlying ROE declined significantly in 2020
Chart 7: RoE analysis for the SUBSET17

16%
14% Investment
gains
12% 4.4% 4.5%
9.7%
10% 8.4%
1.2%
8% 4.6% 5.2%
3.5% Investment
5.3% 5.2%
6% gains 5.2% 0.7% 4.8%
4.2% 2.0% 4.0%
4% 2.7% 3.3%
COVID losses 3.4%
2% 4.5% Investment 4.3% 4.5%
loss 3.2% 3.4%
1.3%
0%
-0.3% -0.3%
-2% -0.7%
Nat cat loss

Nat cat loss

Underlying ROE

Nat cat loss

Underlying ROE

Underlying ROE
Reported ROE

Reported ROE

Reported ROE
Nat cat loss - normalised

Nat cat loss - normalised

Nat cat loss - normalised

Prior year development

Prior year development

Prior year development

2018 FY 2019 FY 2020 FY

Total ROE including investment gains

A lower contribution from investment income more than offset better underlying underwriting
Chart 8: RoE components for the SUBSET
2018 FY 2019 FY 2020 FY
Reported ROE 4.2% 9.7% 2.7%
Remove prior year development -2.0% -1.2% -0.7%
Strip out nat cats 5.3% 4.4% 3.3%
Strip out COVID losses 0.0% 0.0% 4.6%
Add in normalised nat cats -3.5% -4.5% -5.2%
Underlying ROE 4.0% 8.4% 4.8%

Strip out investment gains/losses 0.3% -5.2% -3.4%

Underlying ROE ex-investment gains 4.3% 3.2% 1.3%

Composition of underlying ROE ex-investment gains

Underlying underwriting margin -1.0% -1.7% -0.4%
Running investment income 9.2% 8.8% 5.9%
Other income / expenses -3.8% -3.9% -4.2%
Underlying ROE ex-investment gains 4.3% 3.2% 1.3%

17 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 April 2021
Reinsurance Market Report – Full Year 2020

The ROE trend continues to track down, and returns remain well below the industry’s cost of
capital
Chart 9: RoE time series for the SUBSET18
14%

11.6% 11.3%
12%
10.2%
9.7%
10%
8.2%
8.4%
8% 7.2%
6.3%
6%
4.5% 4.5% 4.5%
4.2% 4.3% 4.8%
4% 3.2%
4.3%
2.7%
2% 1.4%

1.3%
0%

-0.7%
-2%
2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY

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

■ The average reported ROE for the SUBSET companies dropped from 9.7% in 2019 to 2.7%.
■ The 2019 figure had been boosted by abnormally high investment gains, and the 2020 ROE
was burdened by COVID losses.
■ To calculate the underlying ROE, we normalise nat cat losses (including, for 2020, COVID
losses), and exclude the benefit coming from reserve releases (prior year development in
Charts 7 and 8). We also calculate the underlying ROE excluding investment gains as a
further normalisation.
■ On this underlying basis and excluding investment gains, we calculate an ROE of 1.3%,
versus 3.2% last year.
■ It may seem counter-intuitive that the underlying ROE declined in 2020, while the underlying
combined ratio improved. Chart 8 shows the composition of this underlying ROE. While the
underlying underwriting contribution improved by 1.3 percentage points (but was still
negative), this was more than offset by the impact of declining investment yields, with the
contribution to ROE falling by 2.9 percentage points. There was also a negative swing in
‘Other income/expenses’. This includes the non-reinsurance activities of the SUBSET
companies, which were also negatively affected by COVID last year.
■ Chart 9 illustrates the continued pressure on the SUBSET companies’ ROEs, as firming
pricing last year has been more than offset by falling investment yields.
■ While the reported ROE jumped briefly above the industry’s weighted average cost of capital
(WACC) in 2019, underlying performance continues to track significantly below.

18 S&P WACC (weighted average cost of capital) figures.

April 2021 13
 Reinsurance Market Report – Full Year 2020

Lower ROEs across the board for the SUBSET companies

Chart 10: Reported RoE for the SUBSET constituents19

2019 FY
20% 2020 FY
2020 FY SUBSET
15%

10%

5% 2.7%

0%

-5%

-10%

-15%

-20%

■ ROEs in 2020 were uniformly lower for each SUBSET company. Of the SUBSET, only Ren
Re and Arch managed to achieve double-digit ROEs. At the other extreme, QBE’s large
negative ROE was impacted by a number of factors – large COVID losses, a steep fall in
investment income and a significant goodwill write-off.

19 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.

14 April 2021
Reinsurance Market Report – Full Year 2020

Underwriting performance
Premium volumes
Robust premium growth
Chart 11: 2020 change in relevant20 net earned premium (USD basis) for the SUBSET constituents

2020 FY
60%
2020 FY SUBSET
47.5%

50%

40%
21.0%

30%
18.4%

17.8%

13.1%

12.8%

11.8%

20%
10.4%

8.1%

7.3%

5.7%
8.8%
2.9%

2.9%
10%

0.9%
0%

-0.1%
-10%

-12.8%

-13.6%
-20%

■ The SUBSET companies grew their reinsurance premium income by a robust 9% on average
in 2020, aided by a strengthening pricing environment.
■ Amongst SUBSET companies, Arch’s reinsurance unit led the way with nearly 50% organic
growth, driven by growth in existing accounts, new business, and rate increases. At the other
extreme, a re-shaping of Axis’s reinsurance portfolio led to a 14% decline.

20 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 2021 15
 Reinsurance Market Report – Full Year 2020

Combined ratios
Reported combined ratio worsened, but underlying has started to improve
Chart 12: Reported and underlying combined ratio time series for the SUBSET

110%
107.4%

105%
104.1%
100.9% 103.1%
102.3%
100.7%
100% 101.0%
99.9% 100.9% 100.6%
99.2%
98.1%
95%

92.9%
90%
90.7%
90.3% 89.3%

85%
2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY
Reported combined ratio Underlying combined ratio

Deterioration in reported combined ratio entirely attributable to COVID losses

Chart 13: Combined ratio detail for the SUBSET21

2014 2015 2016 2017 2018 2019 2020

SUBSET
FY FY FY FY FY FY FY
Reported combined ratio 90.7% 89.3% 92.9% 107.4% 99.2% 100.6% 104.1%

Remove prior year development 5.6% 6.7% 6.3% 5.3% 4.6% 2.3% 1.5%

Accident year combined ratio 96.3% 96.0% 99.2% 112.7% 103.8% 102.9% 105.6%

Strip out nat cat loss -2.8% -1.5% -4.7% -18.1% -8.6% -8.1% -5.7%

Strip out COVID loss -8.2%

Ex-nat cat accident year
93.5% 94.5% 94.5% 94.6% 95.2% 94.9% 91.7%
combined ratio
Add in normalised nat cat loss 6.4% 6.4% 6.4% 6.4% 7.1% 8.2% 9.0%

Underlying combined ratio 99.9% 100.9% 100.9% 101.0% 102.3% 103.1% 100.7%

21 The normalized nat cat load is the five year moving average of the SUBSET’s nat cat losses, calculated on the basis of annual results.

16 April 2021
Reinsurance Market Report – Full Year 2020

■ The SUBSET’s reported combined ratio deteriorated materially in 2020, from 100.6% to
104.1%, due entirely to the impact of COVID losses.
■ Reserve releases also provided less of a benefit, with an impact of 1.5 percentage points.
This continues the trend of lessening reserve releases seen since 2016.
■ On an underlying basis, however, the combined ratio improved noticeably, from 103.1% to
100.7%. This is the first time since we began calculating this ratio in 2014 that it has
improved on a full-year basis. Pricing improvements, both at the underlying primary
insurance and reinsurance levels, are now being reflected. Reinsurers also benefitted to
some extent from the lower claims frequency seen in several lines of business. The expense
ratio, as noted below, also improved significantly, aided by strong premium growth outpacing
expense growth.
■ It is worth noting that the improvement in underlying combined ratio came despite a higher
normalised nat cat load. For the ‘normal’ load we take the five year average of the actual nat
cat load. This has been creeping up each year.

April 2021 17
 Reinsurance Market Report – Full Year 2020

Over three quarters of the SUBSET companies reported a combined ratio > 100%
Chart 14: Reported combined ratios for the SUBSET constituents

2019 FY
2020 FY
115% 2020 FY SUBSET

110%
104.1%
105%
100%
95%
90%
85%
80%
75%
70%

Underlying combined ratios better, with several very strong results

Chart 15: Underlying combined ratios for the SUBSET constituents

2019 FY
2020 FY
130% 2020 FY SUBSET

120%

110%
100.7%
100%

90%

80%

70%

18 April 2021
Reinsurance Market Report – Full Year 2020

■ While SUBSET companies’ reported combined ratios were high on average, they were also
quite uniform. Over three quarters of the companies recorded a reported combined ratio
greater than 100%, and no company recorded a ratio above 110%.
■ The distribution of underlying combined ratios was similar, although several companies did
achieve very strong results on this basis, eg Ren Re with an underlying combined ratio of
90%.

April 2021 19
 Reinsurance Market Report – Full Year 2020

Prior year loss development

Support from reserve releases continues to decline
Chart 16: Prior year development impact on combined ratio for the SUBSET 22

8%

6.7%
7% 6.3%
6.2%
6% 5.6%
5.3%

5% 4.6%

4%

3% 2.3%

2% 1.5%

1%

0%
2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY

Continued reduction in aggregate reserve releases

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

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
1,810
2,000 25%

1,000

0 0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

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

22 Positive number indicates a favourable prior year impact.

20 April 2021
Reinsurance Market Report – Full Year 2020

Much reduced reserve releases for most of the companies

Chart 18: Prior year development impact on combined ratio for the SUBSET constituents (positive
number = benefit)
25% 2019 FY
2020 FY

20% 2020 FY SUBSET

15%

10%

5%

1.5%
0%

-5%

-10%

■ The slow-down of prior year reserve releases continued in 2020, with releases benefitting the
SUBSET’s combined ratio by 1.5 percentage points, versus 2.3 points in 2019.
■ The consensus view is that the large reserve redundancies that have been produced by older
accident years are now coming to an end, and recent accident years are more challenging
from a reserve adequacy standpoint. As such, the declining support to earnings from reserve
releases should take some time to reverse, and we expect this pressure on reported ROEs to
continue.
■ Amongst the individual SUBSET companies, 2020 saw less extreme moves than in 2019.
Lancashire recorded another sizeable reserve release (albeit smaller than in 2019). Several
reinsurers did strengthen reserves, most notably Everest Re, QBE, Swiss Re and Partner Re.

April 2021 21
 Reinsurance Market Report – Full Year 2020

Detail on COVID losses

Range of COVID losses narrowed in the second half of 2020
Chart 19: Impact of COVID losses on combined ratio for the SUBSET constituents

16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%

Covid loss impact on combined ratio

■ With COVID being likened to a slow-moving nat cat, and with so much uncertainty around
ultimate losses in some lines of business, it is natural that companies might be taking widely
different approaches to booking losses.
■ This was clearly manifest in HY 2020 results, with very wide ranges of loss bookings, in terms
of percentage point impacts on combined ratios. Interestingly, this range tightened up with
Q3 and Q4 results. While second-half loss bookings were generally lower than in the first half
of 2020, it appears that some degree of correction may have taken place across individual
company bookings – possibly as the nature of the event has become better understood.
Excluding the outliers Munich Re and WR Berkley, the range is now a surprisingly tight 4-9
percentage points, versus the roughly 5-20 point range seen at the HY stage.

22 April 2021
Reinsurance Market Report – Full Year 2020

Catastrophe losses
Nat cat losses alone were below the level of recent years, although it was a heavy year
including COVID
Chart 20: Nat cat impact on combined ratio for SUBSET

30%

25.8%
24.8%
25%

20%
18.1%

COVID impact
15% 8.2%

10%
8.6% 8.1%

5.7%
4.8% 4.7%
5%
2.8%
1.5%

0%
2005 … 2011 … 2013 2014 2015 2016 2017 2018 2019 2020

Nat cat losses ex-COVID were contained for most SUBSET companies
Chart 21: Nat cat impact ex-COVID on combined ratio for the SUBSET constituents

2019 FY

2020 FY
25%
2020 FY SUBSET

20%

15%

10%
5.7%
5%

0%

April 2021 23
 Reinsurance Market Report – Full Year 2020

■ Given the heavy weight of COVID losses, thankfully nat cat losses themselves in 2020 were
below the level of recent years. The weight of nat cat losses on the SUBSET companies’
combined ratios averaged 5.7%, below the level of recent years and also therefore below the
normalised five year average of 9.0% we use in calculating underlying combined ratios.
■ Whereas we calculate a reduced load for our SUBSET of reinsurers, Swiss Re has indicated
that insured nat cat losses in total were higher than 2019 – USD81b versus USD54b in 2019
– and also higher than their 10 year average.
■ This divergence between insured and reinsured losses is likely connected to another Swiss
Re statistic – 71% of insured nat cat losses in 2020 were due to secondary perils. This
divergence, and the trend of ever-increasing secondary peril losses (which has continued in
2021), highlights the need for insurers to better understand and protect against these perils.

24 April 2021
Reinsurance Market Report – Full Year 2020

Expense ratios
Robust premium growth outpaced expense growth in 2020, bringing the expense ratio down
Chart 22: Weighted average expense ratio for the SUBSET23

33.5% 33.1% 33.2%

33.0% 32.8% 33.0%

32.5% 32.1% 32.0% 32.1%

32.0% 31.8%

31.5% 31.2%

31.0%
30.5%
30.2%
30.0%
29.5%
29.0%
2013 2014 2015 2016 2017 2018 2019 2020

Revised methodology As originally reported

■ The SUBSET’s average expense ratio fell significantly in 2020, from 31.8% to 30.2%. This
continues the trend seen last year. As in 2019, robust premium growth has helped bring this
ratio down. While premiums grew by 9%, the absolute level of expenses grew by only 4%.
■ This 1.6 percentage point improvement, as noted above, provided an important support to
combined ratios – helping to cushion the deterioration in reported combined ratios, and a
driver of the better underlying combined ratios.

23 The revised methodology we introduced with our half-year 2019 report 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.

April 2021 25
 Reinsurance Market Report – Full Year 2020

Investment performance
Significant decline in running investment yield
Chart 23: Investment yield for the SUBSET24

5%

4%
1.5%

3% 1.2%

2%

2.9%
1% 2.2%

0%
2019 FY 2020 FY

Running yield Gains yield

Overall 2020 investment yield lower for most SUBSET companies

Chart 24: Investment yield for the SUBSET constituents

12% Total 2019 FY yield

Total 2020 FY yield

10%

8%

6%

4%

2%

0%

24 Running yield captures items such as bond coupons, equity dividends and interest income.

26 April 2021
Reinsurance Market Report – Full Year 2020

■ Last year was turbulent in terms of investment returns. The return earned from gains – either
realised gains or mark-to-market gains – swung from violently negative in Q1 to a strong
positive by year-end. As Chart 23 shows, gains contributed a 1.2 percentage points to
investment yields – healthy, albeit less than 2019’s abnormally high 1.5 percentage points.
■ The real story of 2020 however, is the dramatic decline in running yield, from 2.9% to 2.2%.
Unlike gains/losses, which can be volatile, running income, ie coupons on bonds, etc, should
be more recurring.
■ This decline in running yield more than offset improvements in the SUBSET’s underlying
combined ratio, and pushed the underlying ex-investment gains ROE down in 2020.
■ Government bond yields in a number of countries have started to rise again in 2021, but it will
take some time for these higher yields to fully work their way into (re)insurers’ investment
portfolios.
■ Looking at the individual SUBSET companies, the US and Bermudan reinsurers in particular
recorded high total investment yields (ie running plus gains). 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.

April 2021 27
 Reinsurance Market Report – Full Year 2020

Appendix 1
Methodology
In our HY 2019 report we broadened our definition of capital to include subordinated debt and minority
interests, and restated FY 2018 capital accordingly. 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 2020 disclosures. We also restate the prior year capital position. The impact on
the previous year’s capital position from these constituent changes is the USD11b ‘Change in
constituents’ shown in Chart 1.
INDEX
Capital at least USD1b or total group NWP at least USD1b, and reinsurance NWP at least 10% of
group NWP.

Major regional and local reinsurers25

Capital at least USD250m or total group NWP at least USD250m, and reinsurance NWP at least 10%
of group NWP.

Pro rata of composites26

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 USD250m.

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.

Lloyd’s market
The treatment of the Lloyd’s market is complex given its nature. Lloyd’s syndicates are not explicitly
included in this study, in order to avoid double-counting. Many of the companies included in this
study have capital backing Lloyd’s syndicates, which is included in each company’s individual
contribution.

25 Applies to constituents which don’t qualify for the INDEX.

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

28 April 2021
Reinsurance Market Report – Full Year 2020

Appendix 2

Appendix 2

April 2021 29
 Appendix 2
FY 2020 results detail for the INDEX

30
NB : Shaded rows in the above summary denote SUBSET groups
Reinsurance Market Report – Full Year 2020

April 2021
Reinsurance Market Report – Full Year 2020

(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 2020 is based on FY 2019 disclosure.
(3) Companies which have a March 31 financial year-end. Data for the year ended March 31 2020 is included in the column headed FY
2019 (and similar for prior years), and FY 2020 data is also based on year-end March 31 2020 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 2020 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 2021 31
Contact us
Haggie Partners

D +44 20 7562 4444

willisre@haggie.co.uk

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path
for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver
solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our
unique perspective allows us to see the critical intersections between talent, assets — the dynamic formula that drives business performance. Together,
we unlock potential. Learn more at willistowerswatson.com.

© Copyright 2021 Willis Limited / Willis Re Inc. All rights reserved: No part of this publication may be reproduced, disseminated, distributed, stored in a retrieval system, transmitted or otherwise transferred in
any form or by any means, whether electronic, mechanical, photocopying, recording, or otherwise, without the permission of Willis Limited / Willis Re Inc. Some information contained in this document may be
compiled from third party sources and we do not guarantee and are not responsible for the accuracy of such. This document is for general information only and is not intended to be relied upon. Any action
based on or in connection with anything contained herein should be taken only after obtaining specific advice from independent professional advisors of your choice. The views expressed in this document
are not necessarily those of Willis Limited / Willis Re Inc., its parent companies, sister companies, subsidiaries or affiliates, Willis Towers Watson PLC and all member companies thereof (hereinafter “Willis
Towers Watson”). Willis Towers Watson is not responsible for the accuracy or completeness of the contents herein and expressly disclaims any responsibility or liability for the reader’s application of any of
the contents herein to any analysis or other matter, or for any results or conclusions based upon, arising from or in connection with the contents herein, nor do the contents herein guarantee, and should not be
construed to guarantee, any particular result or outcome. Willis Towers Watson accepts no responsibility for the content or quality of any third party websites to which we refer.

The contents herein are provided for informational purposes only and do not constitute and should not be construed as professional advice. Any and all examples used herein are for illustrative purposes
only, are purely hypothetical in nature, and offered merely to describe concepts or ideas. They are not offered as solutions to produce specific results and are not to be relied upon. The reader is cautioned to
consult independent professional advisors of his/her choice and formulate independent conclusions and opinions regarding the subject matter discussed herein. Willis Towers Watson is not responsible for
the accuracy or completeness of the contents herein and expressly disclaims any responsibility or liability for the reader’s application of any of the contents herein to any analysis or other matter, nor do the
contents herein guarantee, and should not be construed to guarantee, any particular result or outcome.

Willis Limited, Registered number: 181116 England and Wales.

Registered address: 51 Lime Street, London, EC3M 7DQ.
A Lloyd’s Broker. Authorised and regulated by the Financial Conduct Authority
for its general insurance mediation activities only.

WTW479104/0221

willistowerswatson.com