Same issue started two days ago on my Apple Watch Series 1 (2nd gen). Apple Watch Wouldn’t recognize contact relationships (wife, mother, sister, etc.) but also, incoming texts displayed with contact’s phone numbers instead of their names as it always had before and, as it does on iPhone. After about two and a half hours on the phone with two different Apple advisers and, after each of them walking me through every possible method of un-pairing, re-pairing, resetting sync data, deleting all content and settings and hard resetting iPhone and Apple watch, the issue remained. The second adviser forwarded the issue and a list of all our attempts to fix the problem to Apple engineers. He said they usually respond to him between three and five days and that he’d get back to me once they do. He also said, the last thing to try is, GULP!, restoring iPhone! He said he wouldn’t have me go that route until he hears back from the engineers but said I could restore iPhone on my own if I wanted to. I know a challenge when I hear one so, last night I restored iPhone from a back up via iTunes. Once iPhone was done restoring it was late but, I tried sending a text to my “wife” only to frustratingly get the response “I don’t know who your wife is. We can set that up on iPhone” with a button under that to continue the text on iPhone. It was too late to keep trying so, that was that for the night. In the morning, I went into the watch app on iPhone, down to ‘general’, down to ‘reset’ then clicked ‘reset sync data’. Just like when the advisers had me do that same process yesterday, clicking ‘reset sync data’ didn’t appear to do anything at all. Nothing happened when I clicked that button however, shortly after that I was driving to work and began receiving my normal daily texts from my wife and immediate family and, I noticed their names displayed with their texts. Not their phone numbers as had been happening. HOPE! I tried “Hey Siri, tell my wife I love her” and voila! Siri knew who my wife is and sent the text. Then I tried my mother, sister and brother and those worked too. I can’t say for sure if merely restoring iPhone and a little time fixed it or, if restoring iPhone, over night then clicking reset sync data this morning is what did it but my watch has been working and showing contacts correctly all day today and, is back to knowing who my wife and family are. I hope this mini trial helps someone out there. Convoluted but, ultimately effective. Restore iPhone, re-pair watch (unless restoring from backup which I think brings over the paired settings) then click reset sync data in the watch app on iPhone. Good luck one and all. Oh, and my wife’s Apple Watch series 2 began having the same issue about a month ago but, she ignores such things whereas I need everything working correctly right away so, I’ll be restoring her phone to get hers back.