Interest in capital relief reinsurance transactions increases in 2009

Capital constraints amongst global insurers are likely to affect market conditions in 2009, as shareholders’ funds for 24 surveyed reinsurers declined 18%  — down to US$127 billion — during 2008, according to a recent Aon Benfield report.
“The problem at the start of the year (2008) had been to service excess capital, with many seeing dividends and share repurchases as the solution,” says the report, The Aon Benfield Aggregate (ABA), which provides financial data for 24 major reinsurers.
“By mid-year, the challenge centered on capital preservation and maintenance, for the anticipated upturn in premium income.”
The report notes that investment gains and losses for the 24 reinsurers represented in the ABA reported through the income statement “swung from a pre-tax gain of US$2.5 billion in 2007 to a loss of US$18 billion in 2008, representing some 12% of the opening year capital base.” In addition, the report notes, net investment losses direct to shareholders’ equity totaled a further US$17 billion.”
These reductions in insurer capital, combined with the continuation of global credit and liquidity problems into 2009 Q1, have led to increased interest in capital relief transactions globally, Aon Benfield says.
“This has taken the form of quota share, surplus share, property catastrophe occurrence and aggregate as well as adverse loss reserve development reinsurance contracts.”