MONTE CARLO, 13 September 2015 – Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc (NYSE:AON), today releases the September 2015 edition of its Reinsurance Market Outlook report, which provides a comprehensive analysis of the key variables affecting reinsurance buyers in the approach to the January 1 reinsurance renewals.
The report forecasts that reinsurance demand will increase slightly in 2016 due to factors including updates to rating agency capital models, the continued privatization of re/insurable risks from government pools, and re/insurers’ expansion into new lines of business.
In terms of business expansion, the report outlines areas of opportunity for insurers and reinsurers, including:
• U.S. mortgage risk – the transfer of credit default risk from government entities Fannie Mae and Freddie Mac to the insurance and reinsurance markets is presenting re/insurers with the opportunity to provide up to USD6bn of capacity annually for the next six to seven years.
• Annuity risk – demand remains high for risk transfer solutions to mitigate exposures to long-term fixed, variable, equity indexed annuities, as well as other products with embedded guarantees. Aon’s Pathwise platform brings significant computational transparency and speed to insurers facing the challenge of dynamically hedging these risks in the capital and traditional reinsurance markets. The Pathwise platform is expected to drive greater reinsurer capacity and allow Aon Benfield clients to efficiently execute reinsurance transactions, including biometric risks that cannot be hedged in the capital markets.
• Privatization of risk – government pools insuring catastrophe-exposed property are actively organizing depopulation programs and transferring risk on remaining catastrophe risks to the private markets.
• Rating agency criteria change – A.M. Best has recently updated its ratings criteria to include higher levels of protection against catastrophe risks.
In terms of market dynamics, the report reveals that at the end of the second quarter of 2015, total global reinsurance capital had declined by two percent to USD565bn (YE 2014: USD575bn). Set against an environment of stable operating earnings and light catastrophe activity, the decrease was in part due to currency fluctuations – predominantly, the weakening of the euro against the U.S. dollar, higher bond yields impacting reinsurer bond investment market valuations, share repurchases, and dividends.
Alternative capital continued to grow in market share, contributing 12 percent, or USD68bn, to the total global capital figure at the end of Q2 2015, rising to between USD120bn to USD150bn by the end of 2018 according to Aon Benfield forecasts.
The alternative capital segment comprised record levels of capacity from sidecars (USD8.4bn), industry loss warranties (USD4.0bn), and collateralized reinsurance (USD32.5bn), while catastrophe bond capacity contributed USD23.5bn to the total.
Bryon Ehrhart, Chief Executive Officer of Aon Benfield Americas, said: “Reinsurance market dynamics in 2015 continue to provide our clients with very high quality options to source accretive underwriting capital – we expect these dynamics to remain through the upcoming 1 January 2016 renewal cycle.”
At the end of Q2 2015, insurer capital remained unchanged from year-end 2014, standing at USD4.2trn.
The Reinsurance Market Outlook highlights that mergers and acquisitions activity in the global insurance and reinsurance markets increased dramatically during 2015, with deal volume totaling USD73.3bn across 461 deals to September 1, compared to USD16.8bn across 387 deals in the equivalent prior year period.
As at September 1, global insured catastrophe losses had reached USD16bn – well below the historical 10-year average of USD61bn. Aon Benfield's market outlook remains subject to the value of catastrophe losses occurring throughout the remainder of the year. Barring any major events, the firm expects reinsurer capital to continue to grow in the second half of 2015.
To read the full Reinsurance Market Outlook – September 2015, please click on the link below:
ENDS
Access international media contacts, the full library of Aon media releases, and a media kit with fact sheet and executive bios, via links below.