Reinsurance capital at record level

  • Going higher: global reinsurance capital hit a new record of $595 billion at the end of 2016, with levels of traditional and alternative capital both increasing (Graph by Aon Benfield Analytics)

Global reinsurance capital reached a record $595 billion at the end of December.

That was up 5 per cent on the previous year and $20 billion higher than the previous record recorded in 2014.

The new figure was calculated from company records by Aon Benfield and published in its “Reinsurance Market Outlook” report.

Alternative capital accounted for $81 billion of the total, a rise of 13 per cent.

With so much capital available, the April 1 renewals brought favourable terms for reinsurance buyers, according to Aon Benfield, which expects the June and July renewals to remain positive “with ceding companies likely to achieve improvements in pricing, terms and conditions”.

“Demand for reinsurance remains on a modest upward trend as buyers increasingly recognise the value of the product in a world of proliferating risk-based capital regimes,” Aon Benfield said in an executive summary for its report.

During the first quarter of this year payouts by the insurance industry globally were below the 10-year average. Tentatively estimated at $7.6 billion, almost three-quarters of insured losses occurred in the US where severe weather hit a number of regions.

Aon noted potential risks ahead of the reinsurance industry.

“Major tax reforms under consideration in the US could potentially disrupt the way the reinsurance market is structured, adding additional cost to the industry,” it said, adding that Britain’s exit from the EU, and elections in Germany and France, also present the potential for market disruption.

Among other issues it highlighted was the ‘covered agreement’ finalised in early January by US and EU authorities with the intention of creating a level playing field between their respective insurance markets. The agreement is currently being evaluated by Congress.

The report mentioned a growing consensus that the El Niño weather phenomenon, a major fluctuation in the world’s climate system caused by substantially warmer sea surface temperatures in the central and eastern tropical Pacific Ocean, will return later this year.

El Niño typically has a negative influence on hurricane and tropical storm formations in the Atlantic Ocean as a result of cooler sea surface temperatures and increased wind shear.

However, powerful Atlantic hurricanes can still occur during El Niño years, as was seen with Matthew and Nicole last year.