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Wednesday 20 April 2011
Author: Russell Group

Figures released this week showed that despite the heavy catastrophe toll of the first three months of the year the global reinsurance market ended last year with record capital levels.

The study by broker Aon Benfield, in the latest edition of its Aon BenfieldAggregate (ABA) report, analysed the year end 2010 financial position of the world’s leading reinsurers and examined how 2011 catastrophe losses may affect their capital positions.

It estimated that total global reinsurer capital reached an all-time high of $470 billion at 31 December, a 17% increase over the same period in 2009.

Mike Van Slooten, head of Aon Benfield’s International Market Analysis team, said: “The ABA companies performed well in 2010 despite a number of catastrophe losses. Aggregate capital was at record levels at year-end, leaving the sector well-positioned to manage the events that have taken place in the first quarter of 2011.”

The study compiled by the firm’s Market Analysis unit found that the ABA group of 28 leading reinsurers reported capital totalling $248 billion at year end 2010, an increase of 18% or $38 billion from the end of 2009.

The main drivers for growth were $22.5 billion of new capital raised by National Indemnity (to part-fund Berkshire Hathaway’s railroad acquisition), $23.8 billion of net income, and $10 billion of unrealized investment gains. Increased dividends of $7.4 billion and share buy-backs of $10.2 billion provided a partial offset.

Across the ABA as a whole, return on equity declined from 11.7% in 2009 to 10.4% in 2010. Catastrophe losses and reduced investment income were countered by sharply increased capital gains and higher prior year reserve releases.

The report found:

  • Gross property and casualty premiums written were flat at $124 billion, with the impact of weakening pricing offset by positive effects related to reinstatements and acquisitions;
  • The combined ratio rose by 5.7 percentage points to 95.3%, driven by disclosed catastrophe losses equivalent to 9.1% of net premium earned.
  • Non-life underwriting profit fell by $6.0 billion to $4.8 billion, including a contribution of $5.1 billion from prior year reserves.

In terms of the first quarter of 2011, reported loss estimates issued by ABA companies currently total $12.1 billion.

Aon Benfield added it believes the losses to date fall within expected annual income and represent an earnings event rather than a capital event for the reinsurance industry.