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Tuesday 07 September 2010
Author: Russell Group

Broker Aon Benfield has said the reinsurance market has seen rate decreases continue as excess capacity increased competition in the first six months of the year.

Despite the heavy cat losses in the first half of 2010 rates were down across the board on average between 3% and 5% said the report.

The firm produced its half yearly Aon Benfield Aggregate (ABA) which analyses the financial results of 30 leading traditional global reinsurers.

It revealed that shareholders’ funds grew by 12% in the period to stand at $235 billion, although if you excluded new capital issued shareholders’ funds were broadly unchanged as net income and investment gains were offset by capital returned to shareholders in the form of share buy-backs and dividends as well as negative exchange fluctuations.

The report found pre-tax profit rose 65% to $15 billion, as realised gains boosted an otherwise stable investment return, which more than offset a break-even underwriting performance.

“Excluding capital gains, operating income fell by 36%,” it stated. “The excess levels of reinsurance capacity continued to exert downward pressure on rates. Reinsurers reported rate decreases of 3% to 5% on a global basis, despite an above average incidence of large catastrophe losses.”

The ABA found across those reinsurers involved in the study premium income was flat. “The positive effect of acquisitions was broadly neutralised by lower premium rates and disciplined underwriting,” it added.

The well documented increased catastrophe losses and higher underwriting expenses resulted in the combined ratio for the Aon Benfield Aggregate (ABA) increasing by 8.2 percentage points to 100.0% for the first half of 2010.

While shareholders’ funds grew for the six months ended June 30, during which, the ABA companies repurchased $5.1 billion of their own shares, equivalent to 2.4% of opening shareholders’ funds, as the softening market conditions continued.

The level of total invested assets fell by 1% year on year to $837 billion, withAon Befield saying the composition of the invested assets portfolio had changed marginally from December 31, 2009, reflecting recovery in equity valuations and a renewed appetite for riskier investments.