Reinsurance sector remains profitable despite cat losses

The traditional reinsurance sector continued to be profitable in 2017 despite a spike in combined ratio brought on by the extensive catastrophe losses of 2017, Aon Benfield said in a report Monday.

The Reinsurance Market Outlook from the reinsurance arm of Aon P.L.C. said that 2017 net income was $4.0 billion across a group of major reinsurers that make up the Aon Benfield Aggregate, down from $16.9 billion in 2016.

This despite the Aggregate’s combined ratio jumping to 107.4% in 2017 from 93.6% in 2016, putting the five-year average at 94.7%, the report said.

Profits, however, are down, with pre-tax profit plunging 75% to $5.12 billion in 2017 from $20.5 billion in 2016, the report said.

Global catastrophe losses were the second highest since 2000, with 2017’s $136 billion in payouts, according to the latest global figures, second only to the $139 billion paid out in 2011. Hurricanes Harvey, Irma, Maria and California wildfire outbreaks alone combined to account for $94 billion, or 69%, of all global payouts during the year, the report said.

Beyond the group, Aon Benfield estimates global reinsurer capital at $605 billion at the end of 2017, up 2% from $595.0 billion at the end of 2016.

One factor that helped reinsurers was the “generally high retentions” carried by primary insurers, leaving reinsurers with a smaller portion – Aon Benfield estimates less than one-third – of private sector losses.

The report also noted that “Capital markets investors continued to show strong appetite for insurance risk, both before and after the third-quarter hurricanes,” adding “We expect to see further growth in the alternative capital market during 2018.”

Alternative capital stood at $89.0 billion at the end of 2017, up from $81.0 billion at the end of 2016, according to an email from a company spokesman.

The report concludes by noting that preliminary data for the first quarter of 2018 indicates $7 billion in insured losses, much lower than the $13 billion in first-quarter 2017.