Robust Premium Growth, But Reinsurer Results in the First Half of 2022 Highlight Earnings and Capital Challenges

Hurricane Ian to impact full year underwriting results...

Aon has launched the latest edition of its Aon’s Reinsurance Aggregate (the ‘ARA’) report series, tracking the financial performance of 21 leading global reinsurance carriers during the first half of 2022. These companies underwrite more than 50% of the world’s life and non-life reinsurance premiums and the composite is therefore viewed as a reasonable proxy for the reinsurance sector as a whole.

The report reveals that 1H 2022 was notable for an unusual amount of volatility in the capital markets. The pandemic-related inflationary spike that began in 2021 was exacerbated by Russia’s invasion of Ukraine in February, prompting aggressive interest rate hikes that, in turn, have raised fears of recession. For U.S. stock markets, it was the worst start to a year in more than half a century.

For the ARA, the period saw robust premium growth and generally strong underwriting results. However, overall earnings and equity positions were heavily impacted by unrealised losses on investment portfolios, driven by rising interest rates, widening credit spreads and declining stock markets. These effects are being felt across the global insurance and reinsurance industries.

Mike Van Slooten, Head of Business Intelligence for Reinsurance Solutions, said: “The long-awaited adjustment to higher interest rates will ultimately boost reinsurers’ profitability through higher investment returns, but the speed of the change is having a significant short-term impact on asset values. In addition, high inflation is creating uncertainty around future and legacy loss costs, which may need to be addressed through higher pricing and/or additions to prior year reserves. In publishing the ARA, we try to include data and analyses that could help re/insurers to navigate potential market volatility, maintain resilience, and make better business decisions.”

The report highlights that the devastating impact of Hurricane Ian will influence underwriting results in the second half of the year. In addition, a continued rise in interest rates will further pressure total investment returns and reported book values.

Key highlights of the ARA’s 1H 2022 results, include:

• Gross and net property and casualty (P&C) insurance and reinsurance premiums rose by 10%; growth would have been stronger at constant exchange rates.
• P&C underwriting profit rose by 22% to $7.4bn, representing a net combined ratio of 93.0%, down from 93.7% in the first half of 2021.
• The total investment return reported through income statements was a loss of $1.6bn, compared with a gain of $17.5bn in the first half of 2021.
• Net income attributable to common shareholders of $1.3bn represented a non-annualised return on average common shareholders’ equity of 0.4%.
• Total equity fell by $39bn to $171bn at June 30, 2022, reflecting the additional impact of $30bn of unrealised losses on bonds, booked within other comprehensive income.

To view the latest version of Aon’s Reinsurance Aggregate report, please visit: https://www.aon.com/getmedia/b77d1120-1970-4a57-b01c-10a7b6eaf7cb/20221013-ara-1h-2022_1.pdf

For more information about Aon’s Reinsurance Solutions, please visit: https://www.aon.com/home/solutions/reinsurance.html