Analysis in Aon’s Reinsurance Aggregate (ARA) report, which tracks the financial performance of 23 leading reinsurance carriers through 2019, reveals an increase in premiums and pre-tax profit when compared with the prior year.
The ARA underwrites roughly half of all global non-life reinsurance premiums and a large majority of life premiums.
Insurance and reinsurance broker Aon notes that the operating landscape remained challenging for reinsurers in 2019, underpinned by high retro costs and adverse loss development on the underwriting side, and the impact of fading interest rates on investments.
In contrast, companies did experience increased demand for reinsurance protection in the year and the re-pricing of loss-affected business also had a positive influence on the 2019 financial performance of the ARA. In more recent years, reinsurers have been challenged by elevated levels of catastrophe losses, but in 2019, the catastrophe load fell to a more normal level, says Aon.
In addition, investments did benefit in the year for the group of reinsurers from improved total returns, driven by a very strong stock market performance as well as unrealised gains on bond portfolios associated with the cuts in interest rates.
Overall, property and casualty (P&C) gross premiums written increased by 9% to USD 210 billion in 2019 when compared with the prior year, with 4% growth in primary insurance to USD 108 billion, and 14% growth in assumed reinsurance to USD 102 billion, when compared with 2018. In total, net P&C premiums earned across the ARA expanded by 7% to USD 165 billion in 2019.
At USD 21.5 billion, the ARA’s pre-tax profit for the year increased by 87% year-on-year. Aon notes that net income pretty much doubled to USD 18.2 billion, with an additional USD 11.8 billion of unrealised capital gains taken directly to equity.
Despite the growth in pre-tax profit for the cohort of reinsurers, the ARA’s combined ratio deteriorated from 99.1% in 2018 to 100.3% in 2019, meaning the overall underwriting performance slipped into negative territory for the year. According to Aon, the combined ratio included a 68.2% loss ratio and a 32.1% expense ratio, compared with a loss ratio of 66.7% and an expense ratio of 32.4% in 2018.
The impact from natural catastrophe losses on the combined ratio declined year-on-year to 6 percentage points. However, while reserve development was still favourable in the year and provided a 1.5 percentage point benefit, this is down on the 3.5 percentage point benefit recorded in 2018.
The ARA’s investment yield improved dramatically from a post-financial crisis low of 2.6% in 2018, to 4.4% in 2019, while the underlying ordinary yield remained stable at 2.8%.
Across the ARA, total capital reached USD 255 billion as at the end of 2019, which is growth of 10% when compared with the prior year. Total capital in 2019 is split equity USD 204 billion and debt USD 52 billion. Aon’s report states that more than USD 9 billion was returned to investors throughout 2019.
The return on equity of the ARA reached 9.5% in 2019, which is up on the 4.5% recorded in 2018 and roughly 2 percentage points above the average cost of equity.
Of course, since the spread of the COVID-19 coronavirus pandemic the operating landscape has altered significantly for global reinsurers. The unprecedented challenges are having a truly global impact and resulting in financial market volatility and declining equity markets.
In the latest edition of the ARA, re/insurance broker Aon discusses the COVID-19 pandemic, stating that its report serves as a useful ‘baseline’ from which to assess the potential impacts of the current crisis on the global reinsurance industry.
“The stock market value of the listed ARA companies fell by around a third in the first quarter of 2020, taking the median price-to-book ratio from 1.3x to 0.9x. The impact in terms of reported results will be covered in later editions,” says Aon.