The traditional reinsurance sector as a whole continued to make money last year. Net income across 21 major reinsurers comprising the Aon Benfield Aggregate (ABA) stood at US$4.0 billion, contributing toward a 2.5% increase in total equity to $204 billion at 31 December 2017.
According to Aon Benfield's Reinsurance Market Outlook report, the return on average equity stood at 2.0% for ABA reinsurers. Property and casualty (P&C) underwriting losses stood at $10.6 billion, on net premiums earned of $144 billion, representing a combined ratio of 107.4%. Natural catastrophe losses of $23.6 billion were partly offset by favourable prior year reserve development of $5.9 billion. These figures should be viewed in the context of a total investment return of $29.5 billion.
The ABA constituents are Alleghany, Arch, Argo, Aspen, AXIS, Beazley, Everest Re, Fairfax, Hannover Re, Hiscox, Lancashire, MAPFRE, Markel, Munich Re, Partner Re, QBE, RenRe, SCOR, Swiss Re, Validus and XL Catlin.
1 April treaty reinsurance renewals are dominated by Japan, India, and Korea. Traditional reinsurers continue to show strong appetite for this business and buyers in these markets found ample capacity to meet their risk transfer needs and to support geographic and product growth aspirations, says the report.
Alternative capital showed significant growth over 2017. Losses in the third quarter tested the market and institutional investors responded by showing renewed commitment to an asset class that has delivered relatively attractive, non-correlating returns over time.
Aon Benfield estimates that global reinsurer capital stood at $605 billion at 31 December 2017, an increase of 2% relative to the end of 2016. This calculation is a broad measure of the capital available for insurers to trade risk with. Traditional capital rose by $2 billion to $516 billion, while alternative capital rose by $8 billion to $89 billion.
Catastrophe bond activity has been at record levels for a first quarter of this year and Aon expects to see further growth in alternative capital during 2018. The first few months of 2018 have also been notable for two major M&A deals, pairing AIG with Validus and AXA with XL Catlin.
Aon Benfield said, “We believe there is scope for further consolidation in the sector, driven by the quest for growth, the need to optimise expense and capital efficiency and the external pressure now being applied to certain franchises by investors and rating agencies.
“Major losses have been below average so far in 2018 and capital market conditions have been relatively benign. We conclude that global reinsurer capital remains at peak levels ahead of the mid-year renewals in June and July, which will likely result in strong competition, even for loss-impacted business.”