Traditional reinsurance capital fell by $US13 billion ($16.8 billion) last year to $US357 billion ($462 billion), according to a new report by Willis Towers Watson.

But this was offset by $US70 billion ($90 billion) now allocated to non-traditional capital to give a total reinsurance capital pool of $US427 billion ($553 billion).

According to the newly merged group’s market reinsurance report, the decrease in traditional capital was due to investment losses and the strengthening US dollar.

“However, despite the headline decline, capital oversupply remains a fundamental industry challenge and market pressures continue to manifest themselves in diminishing returns on equity,” Willis Towers Watson says.

To counter these pressures, reinsurers are looking at active capital management to drive returns.

The report says 38 global reinsurers returned $US23.3 billion ($30.1 billion) to shareholders last year, representing 77% of net income. This compared to $US20 billion ($26 billion) in 2014.

Wills Re Global CEO John Cavanagh says pressure on reinsurer returns is continuing, but low losses are helping to maintain financial results. 

“Reinsurers continue to face a myriad of headwinds placing downward pressure on underlying results,” he said.

“However… the dual saviours of reserve releases and low severity loss experience continue to underpin reported results.

“Given the current climate, the broadening of reinsurer business models is proving a successful strategy for many and increasing relevance to clients, despite the impact on expense ratios,” he said.

“But ultimately, reinsurers will yet again be looking to another below-average loss year to maintain acceptable results.”