Aon’s ARA report gives financial insight

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Global professional services firm Aon PLC (Aon) has launched the latest edition of its Aon’s Reinsurance Aggregate (ARA) Report, a study that analyses the 2018 financial results of 23 major reinsurers. The report cites steady operations for reinsurers, despite two years of natural catastrophe losses.

The companies included were, in alphabetical order: Alleghany, Arch, Argo, Aspen, AXIS, Beazley, Everest Re, Fairfax, Hannover Re, Hiscox, Lancashire, Mapfre, Markel, Munich Re, Partner Re, QBE, Qatar Insurance, RenRe, SCOR, Sirius, Swiss Re, Third Point Re and W.R. Berkley. These represent around half of the world’s non-life insurance premiums and a large majority of the life reinsurance premiums – therefore, ‘the aggregated results are regarded as a reasonable proxy for the sector as a whole’, Aon noted.

“The natural catastrophe losses absorbed by the private market in 2017 and 2018 are estimated at US$220 billion – an unprecedented total for any two-year period,” said Mike Van Slooten, Head of Business Intelligence for Aon’s Reinsurance Solutions business. “The impact to the ARA exceeded $32 billion and yet overall earnings have remained positive in both years. We believe this is testament to the resilience of the sector.”

The key findings of the study detailed that total capital deployed by the ARA stood at $233 billion at 31 December 2018, or five per cent relative to a year earlier. Operating performance improved in 2018, aided by a reduced, though still high, burden of natural catastrophe losses. However, the investment result was materially weaker than in 2017 and, as a result, earnings remained well below the cost of capital.

The study also found that gross property and casualty (P&C) premiums written by the ARA rose by 11 per cent to $194 billion, split primary insurance $108 billion (up nine per cent) and assumed reinsurance $86 billion (up 13 per cent). P&C underwriting profit of $1.3 billion was a significant improvement on the loss of $9.3 billion reported in 2017, aided by approximate halving of natural catastrophe losses to $11.3 billion.

The total investment return fell by 29 per cent to $21.3 billion, driven by unrealised losses on bonds (rising US interest rates) and equities (stock market correction in the fourth quarter). Pre-tax profit and net income both rose by 53 per cent to $11 billion and $8.7 billion, respectively, with only a handful of ARA constituents reporting overall losses.

Despite positive earnings overall, ARA total equity fell by eight per cent – $184 billion, driven by the return of capital to investors, unrealised losses on bonds taken directly to equity and strengthening of the US dollar. The return on common equity stood at 4.2 per cent in 2018, up from 2.7 per cent in 2017.