Reinsurers will not cover their cost of capital in 2020 as a result of the impact of the COVID-19 crisis, according to Aon’s Reinsurance Aggregate (ARA) report, published September 23.
However, the report also showed that the reinsurance industry’s capital position remained robust after a strong market recovery in the second quarter of 2020.
The ARA, which examined the financial performance of 23 of the world’s major reinsurers in the first half of 2020, found that total capital stood at $255 billion at the end of the second quarter of the year, which was “unchanged” relative to the end of 2019. But the $3.7 billion of new equity issuance in H1 2020 was more than exceeded by dividends and share buybacks of $6.8 billion, it said.
The ARA group of reinsurers underwrites approximately 50 percent of the world’s non-life reinsurance premiums, and a large majority of the life reinsurance premiums, making the findings in the ARA “a reasonable proxy” for the reinsurance sector as a whole, Aon said.
The impact of COVID-19 dominated reinsurers’ financial results in the first half of 2020, which meant underwriting results were undermined by reserves established for associated claims, while investment returns showed the effects of March’s extreme capital market volatility.
As a result, the first half of the year showed an overall loss. The ARA net combined ratio stood at 104.1 percent.
“Several constituents demonstrated their financial flexibility by raising new funds.”
Mike Van Slooten, Aon’s Reinsurance Solutions
However, the capital base has remained resilient, after a strong capital markets recovery in the second quarter.
Aon reported that property and casualty (P&C) insurance and reinsurance gross premiums written rose by 5 percent to $114 billion, assisted by risk-adjusted renewal rate increases. P&C insurance and reinsurance net premiums earned rose by 6 percent to $84 billion.
Mike Van Slooten, head of business intelligence for Aon’s Reinsurance Solutions, said: “While it is already clear that the ARA will not cover its cost of capital in 2020, more positively, the group’s capital position remains robust, after a strong capital market recovery in the second quarter.
“Several constituents demonstrated their financial flexibility by raising new funds, and others were successful in attracting new alternative capital to support their business positions, despite the challenging market conditions.”
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