Aon Benfield Aggregate Study Confirms Reinsurer Capital Builds to $575 Bn

In the latest edition of its Aon Benfield Aggregate (ABA) report, which analyses the financial results of 31 major reinsurers in 2014, Aon Benfield confirmed earlier estim√Ętes that global reinsurer capital rose by 6 percent to $575 billion in 2014, including a 28 percent increase in alternative capital to $64 billion.

The firm’s latest study found that capital reported by the ABA companies rose by 2 percent to $346 billion. Net income of $38.5 billion, however, “was offset by dividends and share buybacks of $22.3 billion.

Additional “key findings” relating to the 29 publicly-listed holding companies in the ABA include the following:
— Gross property and casualty (P&C) premiums rose by 2 percent to $198 billion, with reinsurance volume unchanged at $89 billion, despite the industry’s pricing pressure.
— The combined ratio improved by 0.3 percentage points to 89.9 percent and P&C underwriting profit rose by 6 percent to $16.8 billion.
— Net catastrophe losses declined from 5.6 percent to 3.8 percent of net premium earned and were well below the long-term average.
— Support from the favorable development of prior year reserves rose by 7 percent to $8.0 billion, equivalent to 4.8 percent of net premium earned.
— Return on equity was unchanged at 11.1 percent, based on net income attributable to common shareholders.
— Reinsurers are incorporating material alternative capital (through ILS, sidecars and asset management mandates) to lower their cost of underwriting capital.

Mike Van Slooten, Head of Aon Benfield’s International Market Analysis team, said: “Sector consolidation is underway as companies look to achieve the advantages of scale and diversification, one of the drivers being enhanced access to alternative capital. Three recently announced M&A transactions between ABA companies will reduce the number of entities in the study going forward.”

In an earlier interview with the IJ Van Slooten enlarged on those consolidations, indicating that “the providers of reinsurer capital have also changed.” There are now fewer hedge funds and other more or less “short term” investors in the reinsurance market, as pension funds, endowment funds and other long term investors have taken positions in reinsurance. They now back the majority of the cat bonds and collateralized reinsurance that is placed in the market.

Source: Aon Benfield