Earnings pressure and ongoing uncertainty around the impact of climate change is reducing the appetite for underwriting property catastrophe reinsurance business, says the newest edition of Aon’s Reinsurance Aggregate (ARA).
The study said that while the sector should be ‘applauded’ for dealing with significant volatility over the last five years and coming out of it with its capital base and ratings ‘largely intact’. But some factors were starting to reduce appetite for underwriting certain risks.
The report added: “More broadly, the sector must also contend with a much more difficult economic environment, as interest rates rise more quickly than expected to counter significant inflationary pressures that are being exacerbated by the lingering effects of the pandemic and Russia’s invasion of Ukraine. These circumstances have the potential to affect appetites for casualty and specialty reinsurance as well.”
It went on: “These macroeconomic factors were evident in the results of the ARA constituents reporting on the first quarter of 2022. Underwriting performance was strong (average combined ratio: 92.8%), but investment returns were undermined by unrealised losses on bonds and weak stock markets. This impacted both return on equity (average non-annualised result: 0.6%) and reported book values.”
The report also revealed that the ARA had achieved a return on equity (ROE) of 10.9% in 2021, which is the best result since 2014.
The firm said that investment returns provided much of the impetus, with equities and other alternative assets performing strongly during the year.
On the underwriting side, pandemic-related impacts diminished, revealing the benefits of compounded rate increases and tightened terms and conditions, although still with an overlay of above-average natural catastrophe losses.
Aon’s Reinsurance Aggregate (ARA) report analyses the financial results of 22 companies which together underwrite more than 50 percent of the world’s life and non-life reinsurance premiums. The 22 companies included in the study are Alleghany, Arch, Argo, Aspen, AXIS, Beazley, Everest Re, Fairfax, Hannover Re, Hiscox, Lancashire, Mapfre, Markel, Munich Re, PartnerRe, QBE, Qatar Insurance, RenRe, SCOR, Swiss Re, SiriusPoint, and W.R. Berkley.
