Reinsurers have reason to smile, as one report has the industry boasting the best net income increase since the financial crisis of 2008.
Aon Benfield has released the findings from its analysis of the world’s leading reinsurers for the first half of this year – and it shows global reinsurer capital reaching a new peak of $570 billion (US) as of June, 2014.
“The influx of alternative capital is lowering risk transfer costs for both insurers and reinsurers, creating a win-win situation that should drive market expansion in the medium-term,” said Mike Van Slooten, Head of Aon Benfield's International Market Analysis team, who also praised Aon’s more granular approach to research and measurement.
“Aon Benfield has made major advances in its analysis of reinsurers' financial performance in recent years, in response to growing insurer demand for strategic insight into longer-term industry trends,” he said. “We are closely monitoring developments in what is a very dynamic environment.”
Aon Benfield Analytics (ABA) estimates that to be an increase of 6 per cent ($30 billion) relative to December 31, 2013.
All dollar values are in U.S. currency.
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.
The firm's latest study found that capital reported by the ABA group of 31 leading reinsurers increased by 4 per cent ($14 billion) to $351 billion (62 per cent of global reinsurer capital), driven primarily by $18.6 billion of net income and $9.4 billion of unrealized capital gains. The main offset was $14.3 billion of dividends and share buybacks. (continued.)
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Further key findings relating to the 29 publicly-listed holding companies in the ABA include:
• Gross property and casualty (P&C) premiums rose by 4 per cent to $109 billion, with growth split evenly between insurance and reinsurance business;
• The combined ratio rose by 0.4 percentage points to 90.3 per cent, with P&C underwriting profit unchanged at $7.9 billion;
• Catastrophe losses declined relative to the prior year and were well below the long-term average;
• Support from the favorable development of prior year reserves declined by 5 per cent to $2.8 billion;
• Return on equity stood at 12.2 per cent in the first half of 2014, the highest level since 2009; and
• Net catastrophe exposures are reducing as risk transfer to the capital markets increases via sidecars, insurance-linked securities and more cost effective retrocession cover.
Van Slooten said reports like these are proving valuable indicators for the reinsurance industry.
“As such, peer studies such as the ABA report,” he said, “which assess comparative performance on a timely basis, are becoming increasingly relevant."
