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Catastrophe losses prompt 6% Q1 fall in global reinsurer capital

Total global reinsurer capital declined 6% from US$470bn to US$440bn in the first quarter of 2011, largely due to the high level of insured catastrophe losses, according to a report by Aon Benfield.

The Aon Benfield Aggregate (ABA) report found that the group of 28 leading global reinsurers reported capital totaling US$238.3bn at the end of the first quarter — a decline of 3.4% or US$8.3bn from the end of 2010. The main contributory factors were US$4.3bn of net losses, US$2.5bn of unrealised investment losses, US$2.0bn of dividend payments and US$2bn of share buy-backs.

The first quarter combined ratio rose by 38.3 percentage points to 143.7%, with US$15.1bn of catastrophe losses representing 57.1% of net premiums earned. This translated into a property and casualty underwriting loss of US$11.5bn. The total investment return reported by the ABA fell by almost a third to US$9bn, driven by a much lower level of capital gains.

The overall net loss of US$4.3bn reported by the ABA reinsurers for the first quarter of 2011 represented a negative return on average common equity of 1.8%. This followed a return of 10.4% or US$23.5bn for the whole of 2010.

Mike Van Slooten, head of Aon Benfield’s international market analysis team, said: “The ABA entered 2011 with peak levels of capital and the decline in reported shareholders’ funds was only 3.4% in the first quarter, despite significant incurred catastrophe losses. We would expect to see this recovered in the second quarter, everything else being equal.”

The full report can be found here.