Global reinsurer capital rose to a new high of $540bn by the end of 2013, according to reinsurance broker Aon Benfield's latest Aggregate report. That equated to a $35bn rise over the $505bn estimated at the end of 2012.
Aon Benfield observed that capital levels were helped by economic recovery in the US, exposure growth in emerging markets and below-average insured catastrophe losses. The broker noted that the support to reported capital positions was muted by unrealized losses on bond portfolios. These were driven by rising interest rates associated with tapering of the US Federal Reserveâ€™s quantitative easing programme.
The capital reported by the Aon Benfield Aggregate group of 31 leading reinsurers increased by 6% ($20bn) to $337bn. Net income of $34bn was the primary driver. Share buybacks and dividend payments reached $20bn, up 15% year on year.
Gross property and casualty insurance and reinsurance premiums written by the ABA rose 5% year on year to $199bn, and the combined ratio improved 2.8pp to 89.6%.
Disclosed catastrophe losses were down 38% year on year to $7.9bn. That contributed 4.7pp to the combined ratio.
Favourable prior-year development also rose, up 23% year on year to $8.7bn. That contributed 5.2pp to the combined ratio. Net investment revenue was flat in absolute terms, but down 30 basis points to 3.1% because of the greater amount invested.
Of the 31 ABA constituents, a contraction of funds was reported at 10 companies. In the cases of Aspen, PartnerRe, Platinum and Validus this was driven by active capital management. At Hannover Re, Munich Re, Swiss Re and XL there were unrealized losses. Fairfax and QBE were the only companies to report retained losses from the year. QBE (shareholder funds down by about 8%) was also impacted by $1.1bn of foreign exchange losses.
In terms of capital distribution, Platinum, PartnerRe, Hiscox, Axis, Montpelier Re, Aspen, Everest Re, RenaissanceRe, Allied World, White Mountains, Arch and Markel favoured share buybacks. Lancashire, Gen Re, Beazley, Amlin, Hannover Re, Catlin, NICO, Mapfre, Scor, QBE, Fairfax and Alleghany favoured dividends. Validus split roughly 50:50 between the two.
Following its acquisition of Alterra, effective May 1 2013, Markel is now a constituent of ABA.
Aon Benfieldâ€™s International Market Analysis team head Mike Van Slooten said: "Reinsurers have reported resilient results in an increasingly competitive marketplace. Most are now adapting their business models to accommodate the increasing availability of lower cost capital, thereby enhancing both their risk transfer capabilities and their offering to clients. We expect capital management activity to accelerate, as the advantages become more apparent.â€Comment: One interesting point relating to the ABA figures was raised by Aon Benfield itself. For decades now it has been a matter of contention on how the value of investments should be treated, with IFRS and GAAP taking different views, while European accounting rules have changed drastically in the past 20 years. The key is whether investments are stated to be held to maturity or as available for sale. In 2013 companies classifying a high proportion of their fixed-income securities as â€˜held for tradingâ€™ saw a significant impact in the investment results reported through income statements, with consequent effects upon pre- and post-tax earnings and return on equity. In cases where the majority of bonds are held as â€˜available for saleâ€™, most of the impact was recorded below the line (in other comprehensive income) and taken directly to equity. If a company recorded those securities as being long-term investments, they would remain listed as unrealized profits or losses. Therefore, as Aon Benfield politely puts it: "Direct comparison of company results can therefore be misleading".
In another area, this was illustrated by the significant capital growth (just under 75%, more than three times any rival constituent of ABA) reported at Markel. In fact this was mainly a reflection of a $2.3bn stock issuance associated with the acquisitio