Record levels for global reinsurer capital: Aon Benfield

Global reinsurer capital totalled a record US$505 billion at the end of 2012, and increase of 11% over the year prior, according to estimates by reinsurance intermediary and capital advisor Aon Benfield.

The calculation is a broad measure of capital available for insurers to trade risk with and includes both traditional and non-traditional forms of reinsurance capital, according to Aon Benfield Analytics’ The Aon Benfield Aggregate (ABA) report, which analyses the financial results of the world’s leading reinsurers in 2012.

“Global reinsurer capital resumed its upward trajectory in 2012, more than recovering the small reduction linked to record catastrophe losses in 2011,” Aon Benfield notes.

“The main drivers were the generally solid earnings of ‘traditional’ reinsurers, unrealized investment gains taken directly to equity and a continued flow of new capital entering the industry in support of rated start-ups and the ‘non-traditional’ sector.”

The 31 companies that form the Aon Benfield Aggregate reported that pre-tax profit more than doubled to US$35.7 billion, driven primarily by a lower level of insured catastrophe losses and capital gains associated with improving investment markets in the second half of the year.

Net income attributable to common shareholders was US$29.1 billion at Dec. 31, 2012. That’s the highest total since the onset of the financial crisis, according to Aon Benfield.  The return on average common equity stood at 10.1%. 

The ABA increased gross P&C premiums in 2012 by 6%, for a total of US$192 billion, of which US$100 billion was classified as reinsurance. Net premiums written totalled US$163 billion.

A P&C underwriting profit of US$11.7 billion was reported, with a combined ratio of 92.6%, split 88.9% to reinsurance and 97.1% to insurance.

The contribution to the combined ratio from catastrophe losses totalled 7.5 percentage points (US$11.9 billion) — down from 20 percentage points (US$29.6 billion) in 2011 — which includes 5 percentage points (US$7.9 billion) of Hurricane Sandy losses in the fourth quarter.

The ABA reinsurance segment combined ratio improved from 110.7%  in 2011 to 88.9% in 2012. The insurance segment combined ratio stood at 97.1%. 

“The low interest rate environment not only has impacted what reinsurers earn on their invested funds but it has added significantly to the competitor landscape,” Mike Van Slooten, Head of Aon Benfield’s International Market Analysis team, said in a statement. 

“Diversified yield seeking investors are now adding material pressure (in terms of price and value competition) and benefits (in terms of lower cost underwriting capital) to the reinsurance market. We expect material changes to the capital structure of the largely equity financed reinsurance market as material new flows of capital are integrated into reinsurance underwriting capital,” Van Slooten continues.

The full report is available on Aon Benfield’s website.