RoE under pressure from excess capital: Aon Benfield

The substantial level of reinsurance capital, a percentage of which is not being deployed, is putting pressure on reinsurers’ return on equity (ROE), Mike Van Slooten, head of market analysis at Aon Benfield, said at a press conference in Monte Carlo.

But he added that there has been an increase in the amount of reinsurance being purchased, which is good news for reinsurers.

Van Slooten argued that the changing risk landscape also presents plenty of opportunities for that capital to be utilised.

“Reinsurance demand is not spoken about so much, because it’s harder to track,” he said. “It’s our view that there has been a modest overall increase in purchasing for the first time in a while in 2015, and we’ve seen that trend continuing into 2016.”

Furthermore, Van Slooten suggested, reinsurance is growing in relevance because of its ability to help insurers better manage their capital and control volatility in their earnings.

“Perhaps that shouldn’t come as a surprise when you look at the various different ways reinsurance can be used to support critical management objectives—creating efficient corporate structures, maximising business positions, developing new products, supporting your target ratings, managing expenses, controlling aggregate exposures, and optimising results in capitalised shares,” he said.

“On the latter point, the global trend towards the introduction of risk-based capital regimes, that fully recognise the beneficial impact of reinsurance on cedants’ capital positions, is having an effect.”