Aon Benfield Reports Reinsurers’ Capital Remains Strong Despite near Record 2011 Cat Losses

April 11, 2012

Aon Benfield’s latest edition of its Aon Benfield Aggregate (ABA) report, which analyzed the year end 2011 financial position of the world’s leading reinsurers and examines how 2011 catastrophe losses affected their capital and earnings positions, estimated that total global reinsurer capital was down 3 percent over the year to $455 billion as of December 31, 2011.

The study concluded that that capital, as reported by the ABA group of 28 leading reinsurers, “reached an all-time high of $251 billion at the end of 2011 – an increase of 1.7 percent or $4.2 billion from the end of 2010. A reduction of 3.4 percent in the first quarter of 2011 was replaced by growth of 1.7 percent, 1.1 percent and 2.3 percent in the three subsequent quarters.”

The primary contributors to ABA capital growth were net income of $11.7 billion and unrealized capital gains of $5.0 billion. The main offsetting factors were dividends and share buybacks, which totaled $13.7 billion.

The report noted that across the ABA as a whole, “return on average common equity declined from 10.4 percent in 2010 to 4.6 percent in 2011, driven by the higher level of catastrophe losses and the relative absence of realized and unrealized investment gains.”

Other “key findings” in the report included the following:
1. Gross property and casualty premiums written increased by 11 percent to $136 billion with contributory factors including acquisitions, reinstatement premiums and organic growth in certain primary insurance lines
2. The combined ratio rose by 13.5 percentage points to 108.2 percent, including a contribution of 23.4 percent from $26 billion of natural catastrophe losses
3. The non-life underwriting result fell by $14.2 billion to a loss of $9.1 billion, despite a positive contribution of $6.5 billion from prior year reserve releases
4. Direct exposure to sovereign debt issued by Portugal, Italy, Ireland, Greece and Spain remains low and is restricted to a handful of ABA constituents.

Mike Van Slooten, head of Aon Benfield’s International Market Analysis team, pointed out: “The reinsurance sector remains strong after a testing year in 2011 and continues to provide very efficient underwriting capital to insurers.

“The volatility sustained by reinsurers was substantial and materially improved the earnings and capital reported by insurers affected by unusual frequency and severity of events occurring in 2011. The value proposition of reinsurance has rarely been so clearly demonstrated.”

Source: Aon Benfield, a division of Aon plc

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