Mike van Slooten, Head of Business Intelligence for Aon’s Reinsurance Solutions division, has warned that reinsurer results will come under pressure through the second half of 2021.
Commenting on Aon’s Reinsurance Aggregate (ARA) report for the H1 period, Van Slooten noted that reinsurers generally performed well during this time, with capital continuing to build.
The report found that the sector’s combined ratio improved from 104.4% last year to 94.0% in 2021, despite natural catastrophe losses more than doubling this year.
Underwriting profits and the strong performance of equities and alternative investments also propelled the ARA to a return on equity of 6.7% in the period (13.4% on an annualised basis).
To arrive at this figure, it looked at 22 reinsurers who together write more than 50% of global life and non-life reinsurance premiums and therefore represent a reasonable proxy for the sector as a whole.
Van Slooten noted that the H1 ARA results shed some light on the current state of the reinsurance market as it looks ahead to the 1 January renewals, as well as enabling cedants to monitor the financial performance of their reinsurance counterparties.
But, while the results are positive, Van Slooten added that “we already know this level of performance will not be maintained in the second half of the year.”
“The European floods in July and Hurricane Ida at the end of August will result in significant losses for reinsurers and, with annual catastrophe budgets already largely exhausted, it is again questionable whether the sector will cover its cost of capital in 2021,” he explained.
“Reinsurance capacity remains plentiful, but the need to improve earnings, after a challenging period since 2017, is expected to result in disciplined deployment at future renewals, against a backdrop of pandemic-related uncertainties, concerns around the impact of climate change, inflationary pressures and low interest rates.”
