The group of 23 reinsurers that form the Aon Reinsurance Aggregate (ARA) recorded strong premium growth in 2018, supported by previous merger and acquisition (M&A) activity and greater demand for reinsurance protection.
Overall, property and casualty (P&C) net premiums for the cohort of companies increased 9% to $154 billion, from the end of 2017 to December 31st, 2018.
According to Aon’s April 2019 Reinsurance Market Outlook, the net combined ratio for the group improved from 106.6% to 99.2%, with the impact of natural catastrophe losses on the combined ratio declining year-on-year, to 7.1 percentage points.
At the same time, favourable prior year reserve development provided a 3.5 percentage point benefit to the combined ratio in 2018, compared with 4 percentage points a year earlier.
For the first time since the financial crisis, the ARA universe experienced a small increase in the ordinary investment yield, to 2.8% from 2.6% in 2017. However, unrealized losses on bonds and equities pushed the overall return down, from 3.8% in 2017 to 2.7% in 2018.
Net income for the group of 23 reinsurance companies increased by $3 billion in 2018 to $9 billion, which represents a return on equity of 4.2%, compared with 2.7% a year earlier. Aon says that the higher year-on-year net income was outweighed by dividends and share buybacks totalling $10 billion, foreign exchange losses of $4 billion, unrealized investment losses of $8 billion, and other adjustments of $3 billion.
Upon conversion to US dollars, total reported equity of the ARA hit $184 billion at the end of 2018, which is down 8% when compared with a year earlier.
The global insurance and reinsurance broker highlights the impacts of the catastrophe experience in both 2017 and 2018, which, when combined results in an insurance and reinsurance industry loss of more than $240 billion.
So far, the catastrophe experience in 2019 has been fairly benign, with total catastrophe losses in the first-quarter of 2019 down 47% on the recent 15-year average, and 26% lower than the median.
“In addition, losses are the slowest start to a year the industry has experienced since 2013,” says Aon.
Following a light catastrophe load, reinsurers were hopeful of more significant and sustainable rate increases at the April 1st renewals, which is dominated by Japanese business. Aon notes that the renewals season saw reinsurers remain committed to the region despite loss activity in the country in 2018, adding that supply continued to meet demand while terms and conditions were balanced for buyers.
Looking forward to the upcoming mid-year renewals, which are dominated by the U.S. and also Australia, Aon expects that the industry “will continue to find adequate supply in the aggregate with individual companies seeing renewals directly in response to exposure change, general loss experience, and a continued focus on loss estimation and creep from the 2017 and 2018 events.”
