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The ARA underwrites around 50% of the world's non-life reinsurance premiums and a large majority of the life reinsurance premiums. It is therefore a reasonable proxy for the sector as a whole. The 23 companies included in the study are Alleghany, Arch, Argo, Aspen, AXIS, Beazley, Everest Re, Fairfax, Hannover Re, Hiscox, Lancashire, Mapfre, Markel, Munich Re, PartnerRe, QBE, Qatar Insurance, RenRe, SCOR, Sirius, Swiss Re, Third Point Re and W.R. Berkley.
The ARA's results in the first half of 2020 were dominated by the impact of COVID-19. Reinsurers faced adversity on both sides of the balance sheet, driven by extreme capital market volatility midperiod and sizeable incurred losses relating to the pandemic. Consequently, an overall loss was sustained for the period and it is already clear that the ARA will not cover its cost of capital in 2020.
More positively, the ARA's capital position remains robust, after a strong capital market recovery in the second quarter. Several constituents demonstrated their financial flexibility by raising new funds and others were successful in attracting new alternative capital to support their business positions, despite the challenging market conditions.
The key highlights of the ARA's financial performance in the first half of 2020 were as follows:
- Total capital stood at USD255bn at 30 June 2020, unchanged relative to the end of 2019, split equity USD201bn (-1%) and debt USD54bn (+6%). Around USD3.7bn of new equity issuance in the period was out-weighed by dividends and share buybacks of USD6.8bn.
- Property and casualty (P&C) insurance and reinsurance gross premiums written (GPW) rose by 5% to USD114bn, assisted by risk-adjusted renewal rate increases. P&C insurance and reinsurance net premiums earned (NPE) rose by 6% to USD84bn.
- The net combined ratio stood at 104.1%, split losses 72.8% and expenses 31.3%. COVID-19 related losses of USD8.2bn contributed 9.7 percentage points (pp) and natural catastrophe losses added another 2.8pp. Prior year reserve releases provided 0.6pp of benefit.
- Life and health (L&H) reinsurance GPW stood at USD25bn. This segment generated additional COVID-19 related losses of USD1.0bn.
- The total investment yield reported through income statements fell to a post-financial crisis low of 2.1%, driven by the capital market volatility associated with COVID-19 and the impact of emergency cuts in interest rates following the onset of the pandemic.
- The net loss for the period was USD1.1bn, representing an annualised return on equity of -1.5%.
There continues to be significant uncertainty around the ultimate extent and distribution of COVID-19 related losses across the industry, particularly in the area of business interruption, partly because the effects of the pandemic are ongoing, but also because there are many coverage issues to be resolved. This in turn means that there is currently heightened sensitivity to additional major loss activity and/or capital market volatility in the remainder of the year.
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