Global reinsurance capital dips, but alternative up by 12%


The total global reinsurer capital stood at $565 billion at December 31, 2015 – a reduction of 2 percent relative to the end of 2014, according to a new report from Aon Benfield, the global reinsurance intermediary and capital advisor of Aon.

This figure comprises capital both from the traditional and alternative markets.

Within the sum, traditional reinsurance capital decreased by 4 percent to $493 billion, driven by the strengthening of the US dollar and the impact of rising interest rates on bond valuations, while the influence of alternative capital continued to grow – increasing by 12 percent to $72 billion, according to the Aon Benfield Aggregate (ABA) report, which analyses the 2015 financial results of 27 major reinsurers.

The study, which now covers a decade of data, found that the shareholders’ funds reported by the 27 ABA companies fell by 4 percent to $326 billion at December 31, 2015. However, when calculated at constant exchange rates the total was shown to have increased slightly, as solid earnings were generated in the absence of major insured catastrophe losses.

The data also showed that in original reporting currencies, two-thirds of the constituents achieved growth in property and casualty (P&C) premiums in 2015 and that the combined ratio was stable at around 90 percent for the third year running, despite another uptick in the expense ratio.

P&C underwriting profit fell by 9 percent to $15.1 billion, of which 55 percent was derived from favourable prior year loss reserve development.

The total investment return declined by 25 percent to $25.1 billion a yield of 2.9 percent (2014: 3.7 percent).

Net income fell by 12 percent to $22.1 billion; headline return on equity has eroded modestly, but remains resilient at 9.8 percent.

Mike Van Slooten, co-head of Aon Benfield’s market analysis team, said: “Ten years have now elapsed since the last major land-falling hurricanes in the US. This has been a decade of unprecedented profitability for global reinsurers, as seen in the average combined ratio of 92.5 percent and average return on equity of 11.1 percent reported by the listed ABA companies over this period.

“The growing pressure on underlying earnings should be viewed against this backdrop, but in reality is likely to drive further M&A activity in the short to medium term.”

Reinsurance, Capital, Aon Benfield, Mike Van Slooten, Global, Bermuda

Bermuda Re