Aon: reinsurance ‘resilient’ despite unprecedented nat cat losses in 2018, 2017

Reinsurance sector earnings have remained buoyant in the face of unprecedented natural catastrophe losses over the past two years, Aon’s Reinsurance Aggregate (ARA) report has found.

Analysis of the 2018 annual accounts of 23 major reinsurers showed that total capital deployed was $233 billion at year end 2018, a drop of $13 billion, 5 percent, from the year before. However, operating performance among the group of aggregated companies had improved in 2018, which Aon said was “aided by a reduced, though still high, burden of natural catastrophe losses”.

But investments were found to be “materially weaker” in 2018 than in 2017, therefore earnings were well below the cost of capital.

Analysts found that aggregated gross property and casualty (P&C) premiums written increased by 11 percent to $194 billion. While split primary insurance was up 9 percent to $108 billion and assumed reinsurance rose by 13 percent to $86 billion.

The P&C underwriting profit of $1.3 billion was “a significant improvement” on the loss of $9.3 billion reported in 2017, the report said. This was partly due to lower nat cat losses of $11.3 billion in 2018.

Total investment return fell by 29 percent to $21.3 billion, which the report said was driven by unrealised losses on bonds (rising US interest rates) and equities (stock market correction in the fourth quarter).

Pre-tax profit and net income both rose by 53 percent to $11.0 billion and $8.7 billion, respectively, while only a few reinsurers reported overall losses.

While earnings were positive overall, the total equity fell by 8 percent $184 billion, as capital returns to investors, unrealised losses on bonds taken directly to equity and strengthening of the US dollar.

Return on common equity stood at 4.2 percent in 2018, up from 2.7 percent in 2017.

Mike Van Slooten, head of business intelligence for Aon’s Reinsurance Solutions business, said: “The natural catastrophe losses absorbed by the private market in 2017 and 2018 are estimated at USD220 billion – an unprecedented total for any two-year period. The impact to the ARA exceeded USD32 billion and yet overall earnings have remained positive in both years. We believe this is testament to the resilience of the sector.”

Aon said the companies examined in the report represent about half the world’s non-life reinsurance premiums and a majority of the life reinsurance premiums, which is why they judge these aggregated results to be a “reasonable proxy for the sector as a whole”.

Companies included were Alleghany, Arch, Argo, Aspen, Axis, Beazley, Everest Re, Fairfax, Hannover Re, Hiscox, Lancashire, Mapfre, Markel, Munich Re, Partner Re, QBE, Qatar Insurance, Renaissance Re, SCOR, Sirius, Swiss Re, Third Point Re and WR Berkley.

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