Reinsurer capital remains strong in 2011 despite near record catastrophe losses, according to Aon Benfield study.
Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc, launched the latest edition of its Aon Benfield Aggregate (ABA) report, which analyses the year end 2011 financial position of the world’s leading reinsurers and examines how 2011 catastrophe losses affected their capital and earnings positions.
Aon Benfield Analytics estimates that total global reinsurer capital was down 3% over the year to USD455 billion at December 31, 2011.
The firm’s latest study found that capital reported by the ABA group of 28 leading reinsurers reached an all-time high of USD251 billion at the end of 2011 – an increase of 1.7% or USD4.2 billion from the end of 2010. A reduction of 3.4% in the first quarter of 2011 was replaced by growth of 1.7%, 1.1% and 2.3% in the three subsequent quarters.
The primary contributors to ABA capital growth were net income of USD11.7 billion and unrealized capital gains of USD5.0 billion. The main offsetting factors were dividends and share buybacks totaling USD13.7 billion.
Across the ABA as a whole, return on average common equity declined from 10.4% in 2010 to 4.6% in 2011, driven by the higher level of catastrophe losses and the relative absence of realized and unrealized investment gains.
Further key findings of the ABA include:
- Gross property and casualty premiums written increased by 11% to USD136 billion with contributory factors including acquisitions, reinstatement premiums and organic growth in certain primary insurance lines
- The combined ratio rose by 13.5 percentage points to 108.2%, including a contribution of 23.4% from USD26 billion of natural catastrophe losses
- The non-life underwriting result fell by USD14.2 billion to a loss of USD9.1 billion, despite a positive contribution of USD6.5 billion from prior year reserve releases
- 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, said: “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.”