New new data from Aon shows that global reinsurance capital fell by 17%, or $115 billion, to $560 billion in the first nine months of 2022, as some of the world’s largest re/insurance groups reported significant declines during the period.
According to Aon’s Reinsurance Market Dynamics report, published on January 1st, 2023, the decrease was primarily due to significant unrealized losses in investment portfolios.
Aon expects $560 billion in dedicated reinsurance capital by the end of September 2022, consisting of $467 billion in traditional capital and $93 billion in alternative reinsurance capital.
Traditional capital fell by more than 19%, or $112 billion, when compared to the end of 2021, while alternative capital fell by slightly more than 3%, or $3 billion.
It’s also interesting to see how reinsurance capital changes from the midpoint of 2022 to the end of September, or the third quarter of the year.
Aon previously reported that global reinsurance capital stood at $600 billion at the end of June 2022, implying that the 9M 2022 total of $560 billion represents a decline of $40 billion, or nearly 7%, in just three months.
Traditional capital fell by more than 7% from H1 2022 to 9M 2022, to the $467 billion reported by Aon today, while alternative capital fell by 2%, or $2 billion, to the $93 billion reported by the broker in its January renewals report.
“Despite the impact of Hurricane Ian, underwriting results were generally resilient in the period, but investment portfolios were impacted by material unrealized losses driven by rising bond yields, widening credit spreads, and declining equity markets,” Aon says. “These effects eroded reported book values and undermined overall earnings.”
The broker also emphasizes the fact that reinsurer management teams identified a mismatch in the major accounting regimes, which was driving volatility in reported equity.
“Mark-to-market losses are being immediately recognized on the asset side, while there is little to no offset on the liability side to reflect the long-term benefits of higher interest rates. Furthermore, bonds are typically held to maturity and recover value as the date approaches,” Aon explains.