Aon Benfield report claims reinsurers seeing falls in profits and ROE

The world’s biggest reinsurers saw both profits and return on equity slip in 2016 as new cash continued to pour into the industry, according to the latest Aon Benfield Aggregate (ABA) report.

The report analysed the 23 major reinsurers domiciled in developed markets, which on a combined basis write approximately 50 percent of global P&C reinsurance premium.

According to Aon Benfield return on equity for the ABA group declined to 8.4 percent in 2016, but remained in excess of the cost of capital. Net income fell by 13 percent to $17.5 billion.

Although investment results improved, underwriting performance was impacted by a higher burden of major losses. The combined ratio for the group stood at 93.5 percent, or 98.8 percent excluding the benefit of prior year reserve releases.

The report claimed that there was a 4 percent increase in total equity to $210 billion at the end of 2016, despite returning almost $13 billion of capital to investors during the year. Further consolidation is expected among companies struggling to meet their return hurdles, the report noted.

Finally alternative capital rose by 13 percent to $81 billion over the year to December 31, 2016, principally reflecting additional deployment into collateralized reinsurance structures. While expected returns have declined, insurance risk remains attractive to capital markets investors relative to other available opportunities, and low correlation with other asset classes remains a key consideration, the report said.