Improved underwriting results and investment valuations significantly increase reinsurer capital at nine month mark
Aon Benfield, the world’s premier reinsurance intermediary and capital advisor, has released the latest edition of its popular Aon Benfield Aggregate (ABA) quarterly report, which collates the financial results of 23 leading global reinsurance entities.
Reinsurer underwriting results were better than expected due to the unusually low level of natural catastrophes in the third quarter. Reserve releases from prior accident years also aided results. Investment income suffered due to lower interest rates and lower yields on comparatively more conservative and shorter term investment portfolios of reinsurers in the wake of a very uncertain investment valuation environment.
Capital benefited greatly from the material advances in fixed income securities valuations, fueled by renewed confidence in credit quality and improving economic outlooks. Equity market recoveries also contributed to the recovery of reinsurer capital.
At September 30, 2009, ABA shareholders’ funds had increased 21% on year end to USD152bn, close to the USD156bn reported at the end of 2007. The main contributors were net income of USD12.7bn (9M 2008: USD4.3bn) and USD12bn of unrealized appreciation of investments.
Bryon Ehrhart, Chief Executive Officer of Aon Benfield Analytics, said: “Reinsurers are very well capitalized and well positioned to serve cedents through a less anxious renewal season for January 2010 business. Reinsurer balance sheets were mildly impacted by the recent credit and liquidity crisis. The prudent risk management practices of reinsurers allowed the orderly renewal of every core reinsurance program in 2009. Good fortune through the 2009 hurricane season combined with improved investment valuations to return reinsurers’ capital to near peak, pre-crisis levels through the first nine months of 2009.”
The ABA combined ratio for 9M 2009 was 91.2%. The absence of large catastrophe losses and lower attritional losses were the drivers behind a 5.7 percentage point (pp) improvement in the loss ratio which dropped to 62.2%.
Meanwhile, the effect of prior year reserve releases was almost unchanged, providing a 3.2pp benefit. The expense ratio also remained broadly stable at 29.0%, and all but one company in the survey group reported a combined ratio of less than 100%.
About Aon Benfield
As the industry leader in treaty, facultative and capital markets, Aon Benfield is redefining the role of the reinsurance intermediary and capital advisor. Through our unmatched talent and industry-leading proprietary tools and products, we help our clients to redefine themselves and their success. Aon Benfield offers unbiased capital advice and customized access to more reinsurance and capital markets than anyone else. As a trusted advocate, we provide local reach to the world’s markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial, and rating agency advisory, and the right professionals to advise clients in making the optimal capital choice for their business. With an international network of more than 4,000 professionals in 50 countries, our worldwide client base is able to access the broadest portfolio of integrated capital solutions and services. Learn more at aonbenfield.com.
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