Global reinsurance capital from traditional and non-traditional sources has stabilised at $US425 billion ($603.99 billion), according to a new report from Willis Re.

The levelling-out comes as reinsurers accelerate capital management strategies, with capital-deployment opportunities diminishing.

In the first half of this year, publicly listed companies on the Willis Reinsurance Index returned almost all earnings to shareholders through share buybacks and ordinary and special dividends.

This amounted to $US16 billion ($22.74 billion), compared with $US9.7 billion ($13.79 billion) returned to shareholders in the whole of last year.

Intensifying merger and acquisition activity is also affecting capital levels, but the challenge of oversupply remains and market pressures are hitting returns on equity (ROE).

“Markets clearly continue to face significant overcapacity and competitive pricing conditions, and overall underwriting margins remain under substantial pressure,” Willis Re Global CEO John Cavanagh said. “But the evolution in the Willis Reinsurance Index is another indicator that we are beginning to see the emergence of rationality in the market.”

The industry has entered “a new reality” for underlying ROE, he says.

“Yet while a significant shift in ROE levels is being accepted by shareholders, the profitable deployment of excess capital remains a key challenge for reinsurers and is exacerbated by the low levels of loss activity.

“Ultimately, however, reinsurance remains attractive to investment capital in the long term, despite the diminishing underwriting and investment returns being delivered, as recently evidenced by Exor’s purchase of Partner Re.”