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Aon Benfield: Reinsurers Remain Well Capitalized

Posted on 13 Sep 2011

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Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corporation released its Reinsurance Market Outlook – Value Creating Capital report, which reviews major events in the year to date and highlights key considerations for insurers in the approach to the January 1, 2012 reinsurance renewals.

In its analysis of the industry, the 50-page study examines standard predictive pricing variables such as reinsurer and insurer capital, rating agency standards, and actual catastrophe losses. It also contains dedicated commentary on trends in the financial markets, insurance-linked securities (ILS), and mergers and acquisitions, as well as reviewing both catastrophe activity by sector and geography, and the 2011 reinsurance renewal periods.

The report reveals that reinsurers remain well capitalized and have the ability to continue to provide value creating capital to insurers at terms that are accretive to the earnings and capital of insurers. Reinsurers, assuming only modest additional insured catastrophe events in the balance of 2011 are likely to have sufficient capital to meet the demands of insurers globally. The influence of catastrophe model changes and related rating agency capital requirements are not expected to drive new demand for capacity in excess of reinsurers' supply for January 2012 renewals.

For the first time, the Reinsurance Market Outlook contains insured loss estimates from Impact Forecasting – Aon Benfield's wholly owned catastrophe model development center of excellence – for recent events, which reflect the firm's extensive on-the-ground research and analysis.

The figures reveal that the Tohoku earthquake on March 11 is estimated to have resulted in an insured loss of between USD30-40bn (USD15-25bn net of Japanese non-life insurer and government earthquake insurance scheme (JER)) and an economic loss to Japan of USD300bn, while the sum of the New Zealand earthquakes caused approximately USD17bn in insured losses, and economic losses of USD24.8bn.

Insurer and reinsurer capital are both expected to end 2011, in the absence of significant additional catastrophe or other losses, with more capital than they held at year end 2010. Insurer capital is likely to show a more meaningful level of growth than reinsurers in 2011 despite reasonable levels of retained catastrophe losses and continued share repurchases.

Bryon Ehrhart, chairman of Aon Benfield Analytics, said: "Throughout the significant insured catastrophe events of 2011, reinsurance has once again proved its inherent ability to add value as an earnings and capital protection tool. Reinsurers provide value creating capital to insurers that desire efficient capital structures to support risk taking at competitive and accretive terms. There is still plenty of opportunity for insurance and reinsurance partners to collaborate, innovate, add more value to insureds and profit together.