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12 September 2019 Insurance

P&C premium growth drives sharp rise in revenue for reinsurers; firms see 'benign major loss'

Reinsurers posted strong earnings in the first half of 2019, driven by a surge in premiums in Property & Casualty (P&C), according to Aon’s Reinsurance Aggregate ( ARA) report.

It covers 23 companies, which underwrite around 50 percent of the world’s non-life reinsurance premiums and a majority of the life reinsurance premiums. This includes Swiss Re, Munich Re and Hannover Re.

The ARA report showed that P&C premiums rose 8 percent to $108 billion. The “broad-based growth in assumed P&C premiums was suggestive of increased demand for reinsurance solutions,” Aon said. Other premiums were flat at $39 billion.

The ARA group posted strong earnings for the first half of 2019, driven by premium growth, benign major loss experience and capital market conditions that were conducive to investment returns, said Aon. Pre-tax profit stood at $15.7 billion, up 42 percent on the same period last year. Net income rose by 44 percent to $13 billion, representing a relatively strong annualised return on equity of 13.7 percent. This result was significantly ahead of the cost of equity.

Total equity rose by $17 billion to $201 billion as at June 30 2019, net of a capital return to investors of $7 billion.

The calendar year combined ratio deteriorated by 2 percentage points to 96.2 percent from 94.2 percent in H1 2018, driven almost entirely by additions to reserves for prior year catastrophe losses, notably Typhoon Jebi, said Aon. P&C underwriting profit fell by a third to $3 billion.

Ordinary investment income rose 7 percent to $11.7 billion, influenced by the impact of interest rate rises in the US and UK markets during 2018. Capital gains increased substantially to $7.1 billion, reflecting unrealised gains on bond and equity portfolios.

Aon estimates that global reinsurer capital rose by 4 percent, or $25 billion, to $610 billion.

Assets under management in the alternative capital sector are estimated to have declined by 4 percent, or $4 billion, to $93 billion over the six months, driven by the payment of losses and investor redemptions.

Despite a generally upbeat picture, Aon warned that bank base rates are likely to move lower, “given the significant weakening of the global economic growth outlook over the past year”. It said that “lower for longer” interest rates will pressure investment returns, maintain focus on underwriting margins and increase the likelihood of further mergers and acquisitions activity.

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