Global Reinsurer Capital Rises to $505 Billion: Aon Benfield Study

In the latest edition of its Aon Benfield Aggregate (ABA) report, which analyses the financial results of the world’s leading reinsurers in 2012, Aon Benfield Analytics estimates that global reinsurer capital totaled a record $505 billion at December 31, 2012, an increase of 11 percent, compared to $500 billion on December 31, 2011.

“This 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,” said the announcement.

Aon Benfield’s latest study found that capital reported by the ABA group of 31 leading reinsurers increased by 12 percent ($33 billion) to $313 billion, driven primarily by $29.5 billion of net income and $15.9 billion of unrealized capital gains. Dividends and share buybacks rose marginally to $16.1 billion.

Further key findings include the following:
— Gross property and casualty (P&C) insurance and reinsurance premiums written by the ABA rose by 6 percent to $192 billion, principally driven by higher pricing in loss-affected lines and territories, with a number of companies deploying new sidecar capacity for catastrophe business.
— The P&C combined ratio stood at 92.6 percent, down from 105.1 percent in 2011, representing an underwriting profit of USD11.7 billion, with all but two constituents reporting positive results.
— The contribution to the combined ratio from catastrophe losses totaled 7.5 percentage points ($11.9 billion), down from 20.0 percentage points $29.6 billion) in 2011.
— The benefit to the combined ratio from favorable development of prior year reserves was 4.3 percentage points ($6.8 billion), down from 5.0 percentage points ($7.5 billion) in 2011.
— Pre-tax profits reported by the ABA companies more than doubled to $35.7 billion, the highest level since the onset of the financial crisis in 2008, with all 31 constituents reporting positive results.
— The level of ABA engagement with third party capital has increased significantly over the last 18 months. This has mainly manifested itself in sidecar sponsorship and the formation of in-house fund management operations.

Mike Van Slooten, Head of Aon Benfield’s International Market Analysis team, said: “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.

“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.”

Source: Aon Benfield

Topics Reinsurance Property Casualty Aon