Aon’s Reinsurance Aggregate (ARA) report analyses the financial results of 22 companies which together underwrite more than 50 percent of the world’s life and non-life reinsurance premiums, and are therefore a reasonable proxy for the sector as a whole.
The report reveals that the ARA group achieved a return on equity of 10.9% in 2021, which is the best result since 2014. Investment returns provided much of the impetus, with equities and other alternative assets performing strongly during the year. On the underwriting side, pandemic-related impacts diminished, revealing the benefits of compounded rate increases and tightened terms and conditions, although still with an overlay of above-average natural catastrophe losses.
Key highlights of the ARA’s results in 2021 include:
• Property and casualty (P&C) premiums rose by 18% to $265bn, split primary insurance $131bn (+20%) and assumed reinsurance $134bn (+16%)
• P&C underwriting profit stood at $7.6bn, representing a combined ratio of 96.2%
• The total investment return rose by 20% to $33.0bn, representing a yield of 3.7%
• Net income of $22.8bn represented a return on equity of 10.9%
• Total capital rose by 1% to $273bn, split equity $211bn (flat) and debt $62bn (+6%)
Mike Van Slooten, Aon’s Head of Business Intelligence, said: “These were good results, given the extent of the natural catastrophe activity in 2021, but the past five years have been challenging from an earnings perspective. Results have diverged over this period and recent changes in underwriting risk appetite reflect attempts to manage volatility, in what has become a very complicated risk environment.”
In a brief comment on the outlook for the sector, the ARA report makes it clear that 2022 has not begun well. Major loss activity has continued and the Ukrainian conflict has created the potential for sizeable insured losses, as well as exacerbating inflationary pressures.
Van Slooten added: “Central banks are raising interest rates more quickly than expected to counter the inflationary threat, and mark-to-market losses on fixed income securities had a heavy impact on investment returns and book values in the first quarter. Developments in the capital markets will have a strong bearing on sector performance in 2022.”
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