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Aon Benfield Study: Global Reinsurer Capital Reaches Record Level of $505B at Dec. 31, 2012

Posted on 09 Apr 2013 by Neilson

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AonAon Benfield, the global reinsurance intermediary and capital advisor of Aon plc, today launches the latest edition of its Aon Benfield Aggregate (ABA) report, which analyses the financial results of the world's leading reinsurers in 2012.

Aon Benfield Analytics estimates that global reinsurer capital totaled a record USD505 billion at December 31, 2012, an increase of 11% (USD50 billion) relative to December 31, 2011. This calculation is a broad measure of capital available for insurers to trade risk with and includes both traditional and non-traditional forms of reinsurance capital.

The firm's latest study found that capital reported by the ABA group of 31 leading reinsurers increased by 12% (USD33 billion) to USD313 billion, driven primarily by USD29.5 billion of net income and USD15.9 billion of unrealized capital gains. Dividends and share buybacks rose marginally to USD16.1 billion.

Further key findings of the ABA study include:

  • Gross property and casualty (P&C) insurance and reinsurance premiums written by the ABA rose by 6% to USD192 billion, principally driven by higher pricing in loss-affected lines and territories, with a number of companies deploying new sidecar capacity for catastrophe business.
  • The P&C combined ratio stood at 92.6%, down from 105.1% in 2011, representing an underwriting profit of USD11.7 billion, with all but two constituents reporting positive results.
  • The contribution to the combined ratio from catastrophe losses totaled 7.5 percentage points (USD11.9 billion), down from 20.0 percentage points (USD29.6 billion) in 2011.
  • The benefit to the combined ratio from favorable development of prior year reserves was 4.3 percentage points (USD6.8 billion), down from 5.0 percentage points (USD7.5 billion) in 2011.
  • Pre-tax profits reported by the ABA companies more than doubled to USD35.7 billion, the highest level since the onset of the financial crisis in 2008, with all 31 constituents reporting positive results.
  • The level of ABA engagement with third party capital has increased significantly over the last 18 months. This has mainly manifested itself in sidecar sponsorship and the formation of in-house fund management operations.

Mike Van Slooten, Head of Aon Benfield's International Market Analysis team, said: "The low interest rate environment not only has impacted what reinsurers earn on their invested funds but it has added significantly to the competitor landscape. Diversified yield seeking investors are now adding material pressure (in terms of price and value competition) and benefits (in terms of lower cost underwriting capital) to the reinsurance market. We expect material changes to the capital structure of the largely equity financed reinsurance market as material new flows of capital are integrated into reinsurance underwriting capital."