The bulk of this report is dedicated to reviewing the annual results of the 21 major reinsurers comprising the Aon Benfield Aggregate (ABA*), following the significant natural catastrophe losses experienced in the second half of 2017. We also summarize recent activity in the alternative capital sector, which continues to exert a growing influence on the global market.
The ABA results confirm that the traditional reinsurance sector as a whole continued to make money in 2017. Net income across the group stood at USD4.0 billion, contributing toward a 2.5 percent increase in total equity to USD204 billion. The return on average equity stood at 2.0 percent.
Property and casualty (P&C) underwriting losses stood at USD10.6 billion, on net premiums earned of USD144 billion, representing a combined ratio of 107.4 percent. Natural catastrophe losses of USD23.6 billion were partly offset by favorable prior year reserve development of USD5.9 billion. These figures should be viewed in the context of a total investment return of USD29.5 billion.
Alternative capital showed significant growth over the course of 2017. Losses in the third quarter tested the market and institutional investors responded by showing renewed commitment to an asset class that has delivered relatively attractive, non-correlating returns over time. Catastrophe bond activity has been at record levels for a first quarter and we expect to see further growth in alternative capital during 2018.
The first few months of 2018 have also been notable for two major M&A deals, pairing AIG with Validus and AXA with XL Catlin. We believe there is scope for further consolidation in the sector, driven by the quest for growth, the need to optimize expense and capital efficiency and the external pressure now being applied to certain franchises by investors and rating agencies.
Major losses have been below average so far in 2018 and capital market conditions have been relatively benign. We conclude that global reinsurer capital remains at peak levels ahead of the mid-year renewals in June and July, which will likely result in strong competition, even for loss-impacted business.
Reinsurance Market Outlook - April 2018
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