14 April 2014ILS

Global reinsurer capital hits record high

Reinsurer capital has reached a record high of $540 billion, according to the latest report by Aon Benfield, providing some indication of the competitive dynamics facing the sector.

This is a 7 percent, or $35 billion, increase in capital from the previous year. Aon Benfield says that the “calculation is a broad measure of capital available for insurers to trade risk with and includes both traditional and alternative forms of reinsurance capital”.

The report found that convergence capital was playing a key role in this development, with players continuing to “extend their engagement with third party capital, principally via sidecar sponsorship and the formation of in-house fund management operations”.

Aon Benfield found that net income was up 16 percent in 2013, helped by low levels of natural catastrophe losses and continued favourable prior year development.

Combined ratios improved 2.8 percentage points during the period to 89.6 percent, while favourable loss reserves rose by 23 percent to $8.7 billion, contributing 5.2 percentage points to combined ratio results.

Share buy-backs rose by 15 percent to $20 billion “partly reflecting the increasing engagement of third party capital” and return on equity for the sector reached 10.6 percent during the period.

P&C players wrote 5 percent more business during the period, but it is apparent that capacity continues to outstrip demand.

Commenting on developments, Mike Van Slooten, head of Aon Benfield’s international market analysis team, says: "Reinsurers have reported resilient results in an increasingly competitive marketplace. Most are now adapting their business models to accommodate the increasing availability of lower cost capital, thereby enhancing both their risk transfer capabilities and their offering to clients. We expect capital management activity to accelerate, as the advantages become more apparent.”