Global reinsurance capital drops 2% to $610bn in H1: Aon
Aon has estimated the total global capital available for reinsurers to trade with dropped 2 percent to $610bn during the first half of the year.
During the first quarter, the broker said capital market turmoil meant global reinsurer capital fell by around 6 percent to $590bn before recovering in Q2 to provide a more modest half year reduction.
Traditional reinsurance equity capital was down 2 percent to $519bn over the six-month period, Aon said, aided by around $8bn of new issuance as capital markets rebounded in Q2.
Aon said solvency ratios generally remain comfortable across the reinsurance sector although risk-based capital adequacy has declined.
Assets under management in the alternative capital sector are estimated to have fallen by 4 percent to $91bn during H1, with funds available for deployment lower due to collateral trapped by recent losses.
Aon said the most notable impact from this is in the retro market.
The overall capital position among the 23 companies tracked through Aon’s Reinsurance Aggregate (ARA) remains robust with total capital unchanged at the end of H1, the broker has reported.
Total capital among the group of reinsurers – which represent around 50 percent of the world’s non-life reinsurance premiums and a large majority of global life reinsurance premiums – was unchanged at $255bn at the end of H1.
Aon said the three largest companies within the group – Swiss Re, Munich Re and Fairfax – represent 40 percent of the total capital of the 23 companies.
Equity accounts for $201bn of this total, down 1 percent year-on-year, with debt representing the remaining $54bn, up 6 percent.
Aon said a strong capital market recovery in Q2 had seen several companies successfully raise new funds with others attracting new alternative capital to support their business positions.
Across the ARA group, Aon said around $3.7bn of new equity was issued during the six-month period, with dividends and share buybacks totalling $6.8bn.
The ARA generated a net combined ratio of 104.1 percent for the six-month period, with $8.2bn of Covid-19 losses contributing 9.7 percentage points to a 72.8 percent loss ratio.
Natural catastrophe losses contributed another 2.8 percentage points. These losses were partially offset by 0.6 points of favourable prior year reserve releases.
P&C gross written premiums were up 5 percent to $114bn across the ARA, with life and health reinsurance gross premiums totalling $25bn.
Across the ARA, the 23 reinsurers generated a net loss of $1.1bn for the period, representing an annualised return on equity of -1.5%. Aon said it was already clear that the group of reinsurers would not cover its cost of capital in 2020 and would be sensitive to any additional losses or capital market volatility for the remainder of the year.
Mike Van Slooten, head of business intelligence for Aon’s Reinsurance Solutions business, said: “While it is already clear that the ARA will not cover its cost of capital in 2020, more positively, the group’s capital position remains robust, after a strong capital market recovery in the second quarter.
“Several constituents demonstrated their financial flexibility by raising new funds, and others were successful in attracting new alternative capital to support their business positions, despite the challenging market conditions.”
The 23 companies included in the ARA study are Alleghany, Arch, Argo, Aspen, Axis, Beazley, Everest Re, Fairfax, Hannover Re, Hiscox, Lancashire, Mapfre, Markel, Munich Re, PartnerRe, QBE, Qatar Insurance Company, RenRe, Scor, Sirius, Swiss Re, Third Point Re and WR Berkley.