Reinsurance capacity reaches new peak: Aon Benfield

Reinsurance capacity has reached a new peak in 2016 and is likely to further contribute to price declines, according to research by broker Aon Benfield.

Total capacity was $595 billion at Dec. 31, 2016, up from $565 billion in the previous year and $385 billion in 2006, the broker stated in its 2017 Reinsurance Market Outlook report. The increase was supported both by alternative capital as well as traditional capital.

Traditional capital rose by 4 percent to $514 billion over the year to December 31, 2016, driven by solid earnings, Aon Benfield said. A sample of 23 global reinsurers, for example, reported a return on common equity of 8.4 percent for 2016, based on a combined ratio of 93.5 percent and an ordinary investment yield of 2.6 percent, the broker said.

Alternative capital rose by 13 percent to $81 billion over the year to Dec. 31, 2016, principally reflecting additional deployment into collateralized reinsurance structures, Aon Benfield said. While expected returns have declined, insurance risk remains attractive to capital markets investors relative to other available opportunities, and low correlation with other asset classes remains a key consideration.

Excess capacity re/insurance particularly in property/casualty has been pressuring rates, bringing many reinsurers’ combined ratios close to or above 100 percent excluding previous year reserve releases.

However, reinsurers are currently strongly capitalized, according to Aon Benfield. Therefore, the broker expects ceding companies to achieve improvements in pricing, terms and conditions in the June and July 2017 renewals.

Today’s top stories

Chubb CEO condemns brokers’ ‘abusive’ behaviour

Terrorist attacks surge worldwide in 2016

JLT Specialty hires senior vice president from Aon in US

RMS introduce ‘cyber-physical’ modelling in response to rising threat

CNA general counsel to retire after 23 years

Alliant buys California firm to expand MGA division

Did you enjoy reading this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.