Global reinsurer capital at record levels - Aon Benfield study

Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corporation), on Tuesday launched the latest edition of its Aon Benfield Aggregate (ABA) report, which analyses the year end 2010 financial position of the world’s leading reinsurers and examines how 2011 catastrophe losses may affect their capital positions.

Aon Benfield Analytics estimates that total Global Reinsurer Capital reached an all-time high of USD470 billion at December 31, 2010 – a 17% increase over the 2009 period.

The latest study compiled by the firm’s Market Analysis unit found that the ABA group of 28 leading reinsurers reported capital totaling USD248 billion at year end 2010 – an increase of 18% or USD38 billion from the end of 2009.

The main contributors to growth were USD22.5 billion of new capital raised by National Indemnity (to part-fund Berkshire Hathaway’s railroad acquisition), USD23.8 billion of net income, and USD10.0 billion of unrealized investment gains. Increased dividends of USD7.4 billion and share buy-backs of USD10.2 billion provided a partial offset.

Across the ABA as a whole, return on equity declined from 11.7% in 2009 to 10.4% in 2010. Catastrophe losses and reduced investment income were countered by sharply increased capital gains and higher prior year reserve releases.

Further key findings of the ABA include:

1. Gross property and casualty premiums written were flat at USD124 billion, with the impact of weakening pricing offset by positive effects related to reinstatements and acquisitions;

2. The combined ratio rose by 5.7 percentage points to 95.3%, driven by disclosed catastrophe losses equivalent to 9.1% of net premium earned;

3. Non-life underwriting profit fell by USD6.0 billion to USD4.8 billion, including a contribution of USD5.1 billion from prior year reserves.

Catastrophic loss activity continued to make the news during the first quarter of 2011. Reported loss estimates issued by ABA companies currently total USD12.1 billion and are shown relative to constituent capital in the chart below. Aon Benfield believes the losses to date fall within expected annual income and represent an earnings event rather than a capital event for the reinsurance industry.

Mike Van Slooten, head of Aon Benfield’s International Market Analysis team, said: “The ABA companies performed well in 2010 despite a number of catastrophe losses. Aggregate capital was at record levels at year-end, leaving the sector well-positioned to manage the events that have taken place in the first quarter of 2011.”