Aon: traditional reinsurance sector drives Q1 2019 rebound

Global reinsurance capital markets recovered in Q1 2019, increasing by 3 percent to US$605 billion over the three months to March 31, 2019 up from US$585 billion at 2018 year end, according to Aon’s latest reinsurance market outlook.

The “most notable” increase came from traditional markets where reinsurers experienced low catastrophe loss activity combined with a stock market rebound, Aon said.

Traditional equity capital rose by 5 percent to US$512 billion, mainly driven by strong earnings. The report also identified the launch of Stephen Catlin’s venture, Convex Group, backed by committed funds of US$1.8 billion from a consortium of private equity investors, as another factor boosting this market.

Reinsurers’ operating performance was “strong in the first half of 2019”, while insured natural catastrophe losses were “below long-term averages”. The report described the "adverse development of reserves", which were held for losses occurring late in 2018 (such as Typhoon Jebi), as “the most significant event”.

Pointing to another reason for the rebound, the report said “it was an unusually favorable period for investing” as stock markets rebounded strongly from December lows, yields benefitted from the recent rise in interest rates in the US and UK markets, and bond yields went into reverse in all major markets, resulting in unrealised gains on fixed-income securities

“The period was also notable for a significant weakening of the outlook for economic growth, driven by trade disputes and rising geo-political tensions," Aon said. "Fears of recession have prompted moves towards renewed monetary easing and downward pressure on central bank rates, dashing hopes that the recent improvement in ordinary investment yields will be maintained.”

The report highlighted Florida and Australia as having strong renewal activity in June and July 2019 but it qualified this saying “both territories experienced loss activity that affected lower layers of programs 2018 and resulted in some increases in portions of programs.”

Alternative markets showed a slight decrease of US$4 billion to US$93 billion in Q1 mainly driven by “loss payments and redemption requests”.

The report said that the first half of 2019 witnessed the lowest catastrophe activity on record since 2006 with only US$18 billion of insured losses. Currently all major regions are “well below the 10-year average (US$36 billion) and median (US$28 billion) activity and only four events have caused more than US$1 billion in losses to date. Three of these events emanated from severe convection storm activity in the US and the fourth was Windstorm Eberhard that hit central and western Europe in March”.

Near normal hurricane activity has been forecast for the 2019 season by National Oceanic and Atmospheric Administration, Colorado State University and Tropical Storm Risk.

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