Global reinsurer capital rose by 7% to $625 billion in 2019, according to Aon’s Reinsurance Aggregate (ARA) report, which tracked the financial performance of 23 leading reinsurance carriers over the year.
The ARA underwrites roughly half of all global non-life reinsurance premiums and a large majority of life premiums.
The report’s calculation was based on a broad measure of the capital available for insurers to trade risk with, and includes both traditional and alternative forms of reinsurer capital.
It also found that traditional equity stood at $530 billion at the end of 2019, up $42 billion, or 9%, relative to a year earlier.
Analysts explained that the main driver was strong investment performance, as stock markets rebounded to record highs and cuts in interest rates resulted in unrealized gains on bond portfolios.
Assets under management in the alternative capital sector were estimated at $95 billion at the end of 2019, down 2%, or $2 billion, relative to a year earlier.
“Reinsurers faced a challenging operating environment in 2019,” said Mike Van Slooten, Head of Business Intelligence for Reinsurance Solutions, and author of the ARA report.
“On the underwriting side, carriers were confronted with higher retrocessional costs, adverse development of recent catastrophe losses, and deteriorating trends in US casualty business. At the same time, interest rates in the key US and UK markets went into reverse, as policymakers sought to address worsening prospects for global economic growth.
As part of the same report, Aon also found that reinsurer premiums and pre-tax profit increased in 2019, due to more demand for reinsurance protection and the re-pricing of loss-affected business.
Total capital deployed by the ARA stood at $255 billion at the end of 2019, representing an increase of $23 billion, or 10%, relative to a year earlier.
Meanwhile, total equity rose by $19 billion, or 11%, to $204 billion, of which $190 billion related to common shareholders, $5 billion to preferred shareholders and $8 billion to minority interests.
And finally, total debt rose by 7% to $52 billion, generating a debt-to-total-capital ratio of 20.3%, versus 20.8% in 2018.
“On a positive note, reinsurers benefited from a modest increase in demand for cover, and the re-pricing of loss-impacted business, while natural catastrophe losses reduced to a level broadly in-line with long-term averages,” Van Slooten continued.
“On the investment side, total returns were boosted by very strong stock market performance and unrealised gains on bond portfolios associated with the cuts in interest rates. As a result, after two years of sub-par earnings in 2017 and 2018, the ARA’s return on equity rebounded to 9.5% in 2019, which was some way ahead of the average cost of capital.”
