Aon Benfield estimates that global reinsurer capital stood at USD605 billion at December 31, 2017, an increase of 2 percent relative to the end of 2016.
This calculation is a broad measure of the capital available for insurers to trade risk with.Traditional capital rose by USD2 billion to USD516 billion, while alternative capital rose by USD8 billion to USD89 billion, according to Aon Benfield’s April 2018 Reinsurance Market Outlook released on Monday..
Alternative capital rose by $8 billion to $89 billion in 2017 and is expected to grow further in 2018 after a strong first quarter, Alternative capital showed significant growth over the course of 2017. Strong inflows in the first half of 2017 coincided with record volumes of catastrophe bond issuance.
Capital markets investors continued to show strong appetite for insurance risk, both before and after the third quarter 2017 hurricanes, the report notes.
The traditional reinsurance sector as a whole continued to make money in 2017 with net income across a group of 21 major reinsurers at $4.0 billion, according to the most recent Aon Benfield Aggregate (ABA).
The net income contributed toward a 2.5 percent increase in total equity to $204 billion. The return on average equity stood at 2.0 percent.
Property and casualty (P&C) underwriting losses stood at $10.6 billion, on net premiums earned of $144 billion, representing a combined ratio of 107.4 percent.
Natural catastrophe losses of $23.6 billion were partly offset by favourable prior year reserve development of $5.9 billion. The figures should be viewed in the context of a total investment return of $29.5 billion, Aon Benfield noted.
Second half losses from natural disasters are estimated at $15 billion, mostly in retrocession, lower attachment point reinsurance and aggregate covers, with another $5 billion of collateral trapped. Most of the capital lost or trapped has since been replaced. Many investors previously enjoyed excellent returns and losses in 2017 generally fell within published risk tolerance ranges.
In addition, the prospect of improved returns in the classes and territories most affected has attracted new participants, the report notes.
April 1 treaty reinsurance renewals are dominated by Japan, India, and Korea. Traditional reinsurers continue to show strong appetite for this business and buyers in these markets found ample capacity to meet their risk transfer needs and to support geographic and product growth aspirations.