Reinsurers Again Prove Resilience But Earnings Remain Challenged

COVID-19 losses mask underlying improvement in underwriting profitability...

Aon plc has launched the latest edition of its Reinsurance Aggregate study, which tracks the reported 2020 financial results of 23 of the world’s leading reinsurance firms.

Aon’s Reinsurance Aggregate (ARA) reveals that, despite the combined effects of around $25 billion of pandemic- and natural catastrophe-related losses and a compromised investment return, the ARA group of reinsurers reported positive earnings for the year and an increased capital base, aided by demonstrated access to new funding.

COVID-19 dominated the headlines in 2020, creating unprecedented and unexpected challenges for reinsurers on both sides of the balance sheet. The year also featured a record number of named storm formations in the Atlantic hurricane season, as well as a continued high frequency of losses from less well-modelled secondary perils, maintaining the focus on the impact of climate change.

Mike Van Slooten, Head of Business Intelligence for Aon’s Reinsurance Solutions, said: “Reinsurers generally performed well in very tough circumstances in 2020 and capital remains strong. Headline results have been poor in three of the last four years, but the underlying picture is now improving as recent adjustments to pricing and other terms and conditions feed through.”

Key highlights of the ARA reinsurers’ collective financial performance in 2020 include:

• Total gross premiums written (GPW) increased by 6% to $294 billion.
• Property and casualty (P&C) premiums increased by 7% to $223 billion, comprising primary insurance premiums of $107 billion (+6%) and assumed reinsurance premiums of $116 billion (+7%).
• The net P&C combined ratio was 103.4%, with COVID-19 losses of $14 billion contributing 8.0 percentage points (pp), and natural catastrophe losses of $8.7 billion adding another 5.0pp.
• Life and health reinsurance GPW stood at $54 billion; this segment generated additional COVID-19 related losses of $2.4 billion.
• §  The ordinary investment yield fell to a new low of 2.3%, driven by the capital market volatility associated with COVID-19 and the impact of emergency cuts in interest rates.
• The capital market recovery following the first quarter was nevertheless sufficient to drive the ARA to an overall net profit of $5.4 billion, representing a return on equity of 2.3% for 2020.
• Total capital rose by 6% to $270 billion, split between equity of $211 billion (+4%) and debt of $59 billion (+16%).
• The stock market value of the listed ARA reinsurers at April 8, 2021 remained 6% below the level seen at the beginning of 2020.

The ARA study forecasts that COVID-19 will continue to be a headwind to earnings in 2021 and uncertainty over the ultimate extent and distribution of related losses will be a factor in maintaining underwriting discipline, alongside deteriorating trends in casualty reserving, the impact of climate change and low interest rates.

Aon’s Reinsurance Aggregate study is available at the following link: http://thoughtleadership.aon.com/Documents/ARA_FY_20210415.pdf