Source: Company reports, Aon Benfield Analytics. Major insurers and reinsurers generally maintained their solid operatin
Aon Benfield Analytics | Market Analysis
The Aon Benfield Aggregate Results for the six months ended June 30, 2014
Risk. Reinsurance. Human Resources.
Table of Contents Global Reinsurer Capital ...................................................................................................3 Executive Summary ..........................................................................................................4 ABA Capital ......................................................................................................................5 Capital Development ......................................................................................................... 5 Capital Management .......................................................................................................... 7 Premium Income ..............................................................................................................8 Earnings .........................................................................................................................12 Underwriting Performance ............................................................................................... 13 Investment Results ........................................................................................................... 15 Net Income ...................................................................................................................... 16 Return on Equity .............................................................................................................. 17 ABA Business Model Evolution ........................................................................................20 Who Are The New Investors? ........................................................................................... 20 How Is New Money Being Deployed? .............................................................................. 20 Implications for ‘Traditional’ Reinsurers ............................................................................ 20 Convergence in Action .................................................................................................... 20 ABA Valuation ................................................................................................................22 Financial Strength Ratings ..............................................................................................23 Appendix 1: ABA Data ....................................................................................................24
2
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
Global Reinsurer Capital Aon Benfield estimates that global reinsurer capital totaled USD570 billion at June 30, 2014, an increase of 6% relative to the end of 2013. This calculation is a broad measure of capital available for insurers to trade risk with and includes both traditional and alternative forms of reinsurer capital. Exhibit 1: Global Reinsurer Capital 700
Traditional Capital Alternative Capital Global Reinsurer Capital
600
470
USD (billions)
500
410
385
400
400
340 6%
-17%
6%
455
7% 11%
-3% 18%
18%
300 200
570
540
505
447
428
466
490
511
368
388
17
22
19
22
24
28
39
50
59
FY 2006
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
FY 2013
1H 2014
321
378
100 0
Source: Company reports, Aon Benfield Analytics
Major insurers and reinsurers generally maintained their solid operating performance during the first half of 2014, aided by below average insured catastrophe losses, economic recovery in the United States, exposure growth in emerging markets and relatively stable capital market conditions. Retained earnings were bolstered by unrealized gains on bond portfolios, driven in particular by lower yields in the eurozone, providing a boost to reported capital positions. The involvement of capital market investors in the reinsurance sector through non-equity participations continues to expand. This is evidenced by record levels of catastrophe bond issuance in the first half of 2014 (exceeding the prior year period by almost 50%), growth in fully collateralized placements, the establishment of new sidecar vehicles and the exploration of alternative business models by hedge fund managers.
Aon Benfield Analytics | Market Analysis
3
Executive Summary In the absence of significant catastrophe losses, industry capital continues to build. Aon Benfield estimates that global reinsurer capital rose by 6% to USD570 billion during the six months to June 30, 2014, driven by generally solid earnings, unrealized gains on bond portfolios and a continuing influx of new funds from capital markets investors. The reported shareholders’ funds of the 31 ABA companies stood at USD351 billion (62% of global reinsurer capital), an increase of 4%, driven by net income of USD18.6 billion and unrealized gains of USD9.4 billion. Convergence is driving risk transfer costs down and freeing-up equity capital. Net catastrophe exposures are reducing as ABA companies layoff increasing amounts of risk to the capital markets via sidecars, insurance-linked securities and more cost effective retrocession cover. Public dividends and share buybacks rose by 11% to USD12.4 billion in the first half of 2014. This was equivalent to 5.4% of opening capital, up from 5.0% previously. Most ABA companies continue to achieve premium growth, despite difficult market conditions. Property and casualty premiums written by the listed ABA (excluding NICO and Gen Re – see below) rose by 4% to USD109 billion in the first half of 2014, with growth split evenly between insurance and reinsurance business. The main drivers were acquisitions, diversification into new lines, expansion in emerging markets, a shift towards longertail proportional business and the impact of multi-year contracts.
Reactions to lower property catastrophe pricing varied, with some companies shrinking their books on both a gross and net basis and others leveraging third party capital to maintain or build their business positions. Increased competition is impacting underwriting margins. The combined ratio of the listed ABA rose by 0.4 percentage points to 90.3% in the first half of 2014, while P&C underwriting profit was unchanged at USD7.9 billion. Reported catastrophe losses declined relative to the prior year period and were well below the long-term average. Underlying fundamentals were negative. Weakening pricing and business mix changes impacted attritional loss and expense ratios and support from prior year reserve development was reduced. Low interest rates continue to depress underlying investment results. The listed ABA reported a 4% increase in ordinary investment income to USD13.4 billion, driven by underlying asset growth and portfolio repositioning. However the yield of 2.9% is down by a third relative to 2007. Headline return on equity remains resilient, but is declining on an underlying basis. Net income reported by the listed ABA rose by 12% to USD14.0 billion, an annualized return on average equity of 12.2%. This result was heavily influenced by realized and unrealized capital gains. Return on equity based on pre-tax operating profit stood at 10.3%.
Evolution of the ABA Aon Benfield Aggregate (ABA) reports are produced on a half-yearly basis and cover the reported results of 31 major reinsurers worldwide, with the aim of identifying the latest trends in the P&C reinsurance marketplace. The study comprises 29 publicly-listed holding companies (‘the listed ABA’) and two US-domiciled subsidiaries of Berkshire Hathaway, namely National Indemnity Company (NICO) and General Reinsurance Corporation (Gen Re). NICO entered into a significant intra-group reinsurance transaction with GEICO Group effective January 1, 2014, which has had a material impact on its reported results. To provide a more meaningful picture of the sector’s underlying performance, many of the charts and ratios used in this report focus on the listed ABA.
4
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
ABA Capital The reported shareholders’ funds of the 31 ABA companies stood at USD351 billion at June 30, 2014, an increase of 4% or USD14 billion since the end of 2013. The total for the listed ABA was USD239 billion, an increase of 4% or USD10 billion. Exhibit 2: ABA Shareholders’ Funds 400
USD (billions)
283
278
300 226
201 200
242
4%
6% 12%
2% 15%
187 12%
351
337
317
29%
-17%
100
0 FY 2006
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
FY 2013
1H 2014
Source: Company reports, Aon Benfield Market Analysis
Capital Development The main drivers of the growth in ABA capital were net income of USD18.6 billion and unrealized investment gains of USD9.4 billion, partly offset by dividends of USD10.1 billion and share buybacks of USD4.2 billion. The most significant unrealized gains were reported by Munich Re (USD2.4 billion), Swiss Re (USD1.7 billion), NICO (USD1.2 billion), ACE (USD0.9 billion) and Mapfre (USD0.6 billion).
Exhibit 3: Year-to-Date ABA Shareholders’ Funds Development 375 9.4 18.6
0.6
-4.2 -10.1
USD (billions)
-1.1 350 337.5
351.3
0.5
325
300 FY 2013 Additional Net SHF capital income
FX
Investment Share Dividends gains buybacks
Other
1H 2014 SHF
Source: Company reports, Aon Benfield Market Analysis
Aon Benfield Analytics | Market Analysis
5
Between them, NICO and Gen Re reported USD112 billion of shareholders’ funds at June 30, 2014, representing 32% of the ABA total. On a combined basis, Munich Re, Swiss Re and ACE contributed USD101 billion or 29%. More than half of the ABA companies (17) reported shareholders’ funds in excess of USD5 billion, while five remained below USD2 billion.
Exhibit 4: Reported Shareholders’ Funds at June 30, 2014 by ABA Constituent 100 90
USD (billions)
80 40 70 60 30 50 40 20 30 20 10 10 0 0
Source: Company reports, Aon Benfield Market Analysis
All but four ABA companies reported capital growth in the first half of 2014, generally driven by retained earnings and/or unrealized investment gains taken directly to equity. QBE also benefited from a USD250 million debt conversion and significant foreign exchange gains. The reductions in shareholders’ funds at Beazley, Hiscox and RenaissanceRe were driven by active capital management, as shown in Exhibit 6.
Exhibit 5: Year-to-Date Movement in Reported Shareholders’ Funds 14% 12%
ABA
10% 8% 6% 4% 2% 0% -2% -4% -6%
Source: Company reports, Aon Benfield Market Analysis
6
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
4%
Capital Management Surplus equity is being returned to investors in growing amounts, partly reflecting increased interaction with third party capital structures. Capital repatriation by the listed ABA increased by 10.9% to USD12.4 billion in the first half of 2014. This was equivalent to 5.4% of opening shareholders’ funds, up from 5.0% in the prior year period. Dividend payments rose by 4% to USD8.2 billion, while share buybacks climbed by 26% to USD4.2 billion.
Exhibit 6: Dividends & Share Buybacks as a Percentage of Opening Shareholders’ Funds 16% 14%
Dividends Share buybacks
12% 10% 8% 6% 4% 2% 0%
Source: Company reports, Aon Benfield Market Analysis
Aon Benfield Analytics | Market Analysis
7
Premium Income Total premiums written by the ABA rose by 13% to USD171 billion in the first half of 2014. The portion related to P&C business rose by 17% to USD128 billion, but was up by only 4% to USD109 billion excluding NICO and Gen Re. Exhibit 7: ABA P&C Gross Premiums Written 150
NICO & Gen Re
USD (billions)
97
Insurance 103
Reinsurance
Total
109
128 19
100
50
93
49
51
56
58
1H 2013
1H 2014
99
0 1H 2011
1H 2012
Source: Company reports, Aon Benfield Market Analysis
NICO reported a fourfold increase in gross premiums written, driven by a new 50% intra-group quota share reinsurance agreement with GEICO Group, effective January 1, 2014. P&C premium growth of 4% across the listed ABA was split evenly between insurance and reinsurance business. The main drivers were acquisition effects, diversification into new lines, expansion in emerging markets, a shift towards longer-tail proportional business and the impact of multi-year contracts. Exhibit 8 shows the splits of P&C premium between direct insurance and assumed reinsurance across the ABA in the first half of 2014, based on (sometimes inconsistent) company disclosure. Munich Re includes Risk Solutions business within its P&C Reinsurance segment (24% of revenues in 2013).
Exhibit 8: 1H 2014 P&C Gross Premiums Written by ABA Constituent 20 18 16 USD (billions)
14 12 10 8 6 4 2 0
Source: Company reports, Aon Benfield Market Analysis
8
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
P&C Insurance P&C Reinsurance
Lancashire reported underlying growth of 5%, excluding USD0.2 billion of premium written via newlyacquired Cathedral at Lloyd’s. Markel’s top line development continues to reflect the consolidation of Alterra from May 1, 2013; underlying volumes were flat on a pro forma basis. At constant exchange rates, QBE reported a 7% reduction in gross premiums written, driven mainly by withdrawals from non-core and poorly-performing insurance business in Europe and North America.
Exhibit 9: Changes in P&C Gross Premiums Written 420% 380% 340% 60% 300% 50% 260% 40% 220% 180% 30% 140% 20% 100% 60% 10% 20% 0% -20% -10%
Listed ABA
4%
-20%
Source: Company reports, Aon Benfield Market Analysis
*P&C reinsurance segment only (as disclosed)
Exhibit 10 isolates the development of the assumed reinsurance books of the ABA constituents in the first half of 2014, where disclosed. Catlin reported growth of 15%, driven by diversification outside the London and Bermuda markets, a shift towards proportional business and multi-year contracts. Arch’s reinsurance book expanded by 14%, reflecting growth in accident and health, mortgage and casualty business. The main driver of the 11% increase at Everest Re was new property catastrophe and casualty business, often written on a customized basis. Reductions of 10% and 9% at Validus and RenaissanceRe were driven predominantly by lower volumes of property catastrophe business, while the 8% decline at Platinum was also influenced by contraction of the casualty excess book.
Exhibit 10: Changes in P&C Reinsurance Gross Premiums Written 20% 15% 10% 5% 0% -5% -10% -15%
Source: Company reports, Aon Benfield Market Analysis
*On a constant currency basis
Aon Benfield Analytics | Market Analysis
9
Net P&C insurance and reinsurance premiums written by the ABA rose by 20% to USD110 billion in the first half of 2014. The listed ABA reported a 4% increase to USD92 billion, based on a virtually unchanged cession rate of 15.8%. Reinsurance utilisation rose most significantly at RenaissanceRe, Endurance and XL, while the biggest reductions were at Lancashire, Swiss Re and Amlin.
Exhibit 11: Ceded RI as a Percentage of 1H 2014 P&C Gross Premiums Written 35% Listed ABA
30% 25% 20%
16%
15% 10% 5% 0%
Source: Company reports, Aon Benfield Market Analysis
*P&C reinsurance segment only (as disclosed)
Net P&C insurance and reinsurance premiums earned by the ABA rose by 19% to USD97 billion in the first half of 2014. The listed ABA reported a 5% increase to USD82 billion, with the five largest constituents contributing USD43 billion, or 53% of the total.
Exhibit 12: 1H 2014 P&C Net Premiums Earned by ABA Constituent 16 14
USD (billions)
12 10 8 6 4 2 0
Source: Company reports, Aon Benfield Market Analysis
10
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
*P&C reinsurance segment only (as disclosed)
Exhibit 13 shows the year-on-year movements in P&C net premiums earned across the ABA. Twothirds of the constituent companies reported growth in the first half of 2014.
Exhibit 13: Changes in P&C Net Premiums Earned 380% 330% 50% 280% 40% 230% 30% 180% 20% 130% 10% 80% 0% 30%
Listed ABA
5%
-10% -20% -20%
Source: Company reports, Aon Benfield Market Analysis
*P&C reinsurance segment only (as disclosed)
Aon Benfield Analytics | Market Analysis
11
Earnings Relative to the prior year period, the ABA reported improved profitability in the first half of 2014, driven by lower catastrophe losses and significantly higher realized and unrealized investment gains. Underlying returns on equity are under pressure. Exhibit 14: Listed ABA Pre-Tax Profit 30
Capital gains/losses 15.4
USD (billions)
20
17.7
15.0
Investment income P&C underwriting result Pure life technical result Other
10 0.5 0 -10
Pre-tax profit -20 1H 2011
1H 2012
1H 2013
1H 2014
Source: Company reports, Aon Benfield Market Analysis
The listed ABA reported pre-tax profit of USD17.7 billion for the first half of 2014, an increase of 18% relative to the prior year period. P&C underwriting profit was unchanged at USD7.9 billion, with favourable prior year reserve development of USD2.8 billion contributing 35% of the total. Ordinary investment income rose by 4% to USD13.4 billion, driven by underlying asset growth and portfolio repositioning. Capital gains stood at USD5.2 billion, an increase of USD4.4 billion, driven by rising equity markets and higher bond values associated with declining interest rates. Exhibit 15 shows the distribution of reported pre-tax profits across the 31 ABA companies. The combined results of NICO, Munich Re and Swiss Re rose by 15% to USD9.9 billion, representing 43% of the total reported by the ABA. The only company to report a negative result was XL, driven by a loss of USD0.7 billion on the sale of its discontinued life reinsurance business.
Exhibit 15: 1H 2014 Pre-Tax Result by ABA Constituent 5.0 4.5 4.0
USD (billions)
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5
Source: Company reports, Aon Benfield Market Analysis
12
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
Underwriting Performance The combined ratio of the listed ABA rose by 0.4 percentage points to 90.3% in the first half of 2014. Reported catastrophe losses were significantly reduced relative to the prior year period and well below the long-term average. Underlying trends were negative, as weakening pricing and business mix changes, particularly a shift towards longer-tail proportional contracts, impacted attritional loss and expense ratios. In addition, the support from the favourable development of prior year reserves was reduced, partly influenced by deterioration of the Costa Concordia loss.
Exhibit 16: Listed ABA Combined Ratio Composition 140% 120% 100%
114.1% 29.1%
80% 60%
59.1%
91.1%
89.9%
90.3%
3.7%
5.4%
3.6%
59.6%
57.6%
58.8%
Total catastrophe losses Attritional loss ratio
Expense ratio
40% 20%
30.2%
30.7%
30.7%
31.4%
-4.2%
-2.9%
-3.8%
-3.5%
1H 2011
1H 2012
1H 2013
1H 2014
Prior year reserve adjustment
0% -20%
Source: Company reports, Aon Benfield Market Analysis
Exhibit 17 shows the distribution of reported combined ratios across the listed ABA for the first half of 2014. All of the constituents were profitable on a calendar year basis, although half of them reported weaker results.
Exhibit 17: 1H 2014 Calendar Year Combined Ratios 120%
Loss ratio
Expense ratio
Listed ABA combined ratio
100% 80%
90.3%
60% 40% 20% 0%
Source: Company reports, Aon Benfield Market Analysis
*P&C reinsurance segment only (as disclosed) **Excluding funds withheld
Aon Benfield Analytics | Market Analysis
13
Exhibit 18 shows the P&C underwriting results reported by the listed ABA companies. On a combined basis, Swiss Re, ACE and Munich Re contributed USD2.6 billion, or 33% of the total.
Exhibit 18: 1H 2014 P&C Underwriting Result by ABA Constituent 1,200
USD (millions)
1,000 800 600 400 200 0
Source: Company reports, Aon Benfield Market Analysis
*P&C reinsurance segment only (as disclosed) **Excluding funds withheld
Exhibit 19 shows prior year reserve development as a percentage of net premiums earned by the listed ABA companies. Unchanged or modestly improved results were reported in 11 cases, while 14 companies reported lower releases, some of the reductions being material. Overall adverse reserve development was reported by QBE (Argentinian workers’ compensation), Hannover Re (Costa Concordia) and Lancashire (marine and energy).
Exhibit 19: Loss Reserve Adjustments as a Percentage of Net Premiums Earned 40% 35%
1H 2014
1H 2013
30% 25% 20% 15% 10% 5% 0% -5%
Source: Company reports, Aon Benfield Market Analysis
14
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
*P&C reinsurance segment only (as disclosed) **No disclosure ***Excluding funds withheld
Exhibit 20 shows the reported accident year combined ratios of the listed ABA companies (excluding prior year reserve movements). Only Markel and PartnerRe were unprofitable on this basis.
Exhibit 20: 1H 2014 Accident Year Combined Ratios 120%
Listed ABA
100% 93.8%
80% 60% 40% 20% 0%
Source: Company reports, Aon Benfield Market Analysis
*P&C reinsurance segment only (as disclosed) **Excluding funds withheld
Investment Results The listed ABA reported cash and investments of USD939 billion at June 30, 2014, an increase of 2% relative to the end of 2013. Asset allocation was virtually unchanged and as follows: fixed-income 64%, cash and short-term 10%, loans 8%, deposits with cedants 6%, equities 5% and other 7%. The underlying and total investment yields reported through income statements since 2006 are captured in Exhibit 21. The former has fallen by a third since 2007, reflecting the impact of the low interest rate environment.
Exhibit 21: Listed ABA Investment Yield (1H 2014 Annualized) 6%
Total investment yield (incl. capital gains/losses)* 4.9%
5%
4.8%
Underlying investment yield* 4.2%
3.9% 4% 4.1%
3.7%
4.0%
3.9% 3.3%
4.3% 3.9%
3%
3.7% 3.3%
3.4% 3.0%
2%
2.9%
2.9%
FY 2013
1H 2014
1.9% 1% FY 2006
FY 2007
FY 2008
Source: Company reports, Aon Benfield Market Analysis
FY 2009
FY 2010
FY 2011
FY 2012
*Reported through income statements, excluding unit-linked and with-profit business
Aon Benfield Analytics | Market Analysis
15
Exhibit 22 shows the annualized underlying and total investment yields reported by the ABA companies through their income statements in the first half of 2014. Investment classification varies and result comparison can therefore be misleading. Unrealized gains and losses are recognized in the income statements of some companies (e.g. PartnerRe, Fairfax and White Mountains), but in most other cases the majority are taken directly to equity.
Exhibit 22: Investment Yield by ABA Constituent (Annualized) 16%
Underlying investment yield*
14%
Total investment yield*
12% 10% 8% 6% 4% 2% 0%
Source: Company reports, Aon Benfield Market Analysis
*Reported through income statements, excluding unit-linked and with-profit business
Net Income The ABA companies reported net income attributable to common shareholders of USD18.4 billion for the first half of 2014, an increase of 15% relative to the prior year period. Net income across the listed ABA rose by 12% to USD14.0 billion.
Exhibit 23: ABA Common Net Income
USD (billions)
20
18.4
NICO & Gen Re Listed ABA
15.1
15
4.4
2.9
3.6
12.2
12.4
1H 2012
1H 2013
10
5
0
14.0
2.5 2.2 1H 2011
Source: Company reports, Aon Benfield Market Analysis
16
16.0
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
1H 2014
Exhibit 24 shows the distribution of net income attributable to common shareholders by ABA constituent. The combined results of NICO, Munich Re, Swiss Re and ACE rose by 10% to USD9.9 billion, representing 54% of the total. Investment classification varies and result comparison can therefore be misleading.
Exhibit 24: 1H 2014 Common Net Income / Loss by ABA Constituent 4.5 4.0 3.5
USD (billions)
3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5
Source: Company reports, Aon Benfield Market Analysis
Return on Equity Exhibit 25 shows the development of net income attributable to common shareholders relative to average common shareholders’ funds across the ABA since 2006. Return on equity (ROE) across the listed ABA over this period (which encompasses both the financial crisis and the record year for insured catastrophe losses) averaged 11.3%.
Exhibit 25: ABA Common Net Income ROE (1H 2014 Annualized) 20%
15%
17.7%
Listed ABA
16.6%
ABA
14.1%
17.6% 15.3%
10.8%
10%
12.2%
11.4%
11.1%
10.1%
10.6%
10.8%
FY 2012
FY 2013
1H 2014
12.5% 10.7%
3.7%
5.4%
5% 4.4%
3.6%
0% FY 2006
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
Source: Company reports, Aon Benfield Market Analysis
Aon Benfield Analytics | Market Analysis
17
Exhibit 26 shows ROE based on reported net income by ABA constituent for the first half of 2014. Investment classification varies and result comparison can therefore be misleading. The three companies with the strongest results all report unrealized gains through their income statements.
Exhibit 26: 1H 2014 Common Net Income ROE by ABA Constituent (Annualized) 30% Listed ABA 25% 20% 15%
12.2%
10% 5% 0% -5%
Source: Company reports, Aon Benfield Market Analysis
Pre-Tax Operating ROE The distortion caused by differing accounting treatment (and tax regimes) can be addressed by comparing pre-tax operating performance, eliminating realized and unrealized gains. On this basis, the ABA reported an annualized ROE of 9.0% for the first half of 2014, taking the average since 2006 to 11.8%. For the listed ABA, annualized ROE was 10.3% and the average since 2006 stood at 12.5%.
Exhibit 27: ABA Pre-Tax Operating ROE (1H 2014 Annualized) 20% 15%
18.2%
18.6%
16.8%
Listed ABA
15.9%
ABA
18.0% 16.0%
14.8%
15.4%
9.6%
9.8%
10.3%
10.3%
9.4%
9.6%
9.0%
FY 2012
FY 2013
1H 2014
10% 9.2%
4.9%
5% 3.4%
0% FY 2006
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
Source: Company reports, Aon Benfield Market Analysis
Only nine ABA constituents reported improved performance on this measure in the first half of 2014 (see data in Appendix 1).
18
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
Exhibit 28: 1H 2014 Pre-Tax Operating ROE by ABA Constituent (Annualized) 20%
Listed ABA
15%
10.3%
10% 5% 0% -5%
Source: Company reports, Aon Benfield Market Analysis
Total Comprehensive Income ROE Another way to eliminate the distortion caused by differing accounting treatment is to compare total comprehensive income, including all realized and unrealized gains (whether reported through income statements or taken directly to equity). On this basis, the ABA reported annualized ROE of 16.0% for the first half of 2014, taking the average since 2006 to 11.7%. For the listed ABA, annualized ROE was 18.4% and the average since 2006 stood at 11.0%.
Exhibit 29: ABA Total Comprehensive Income ROE (1H 2014 Annualized) 25%
22.1%
19.1%
15% 16.4%
11.3%
20.6% 6.7%
13.9%
13.4%
5%
18.4%
14.8%
14.7%
14.5%
16.0%
14.1%
6.6%
5.5%
-5%
Listed ABA ABA
-10.3% -12.9%
-15% FY 2006
FY 2007
FY 2008
FY 2009
FY 2010
FY 2011
FY 2012
FY 2013
1H 2014
Source: Company reports, Aon Benfield Market Analysis
Virtually all ABA constituents reported improved performance on this measure in the first half of 2014, as lower yields drove bond values higher.
Exhibit 30: 1H 2014 Total Comprehensive Income ROE (Annualized) 30% 25% 20%
Listed ABA 18.4%
15% 10% 5% 0%
Source: Company reports, Aon Benfield Market Analysis
Aon Benfield Analytics | Market Analysis
19
ABA Business Model Evolution A structural shift in the way capital is raised and
Implications for ‘Traditional’ Reinsurers
deployed to mitigate insurance risk is underway. The
New vehicles operating at a lower cost of capital are making inroads into higher-margin areas that remain a key driver of profits for ‘traditional’ reinsurers. These dynamics are forcing many ABA constituents to rethink their business models in the pursuit of differentiation and relevance in the market. In the catastrophe reinsurance space, this increasingly means being able to offer larger line sizes, a full product suite including collateralized limits and enhanced claims service. Companies that are successful in attracting and deploying third party capital will potentially be able to advance their client offering, reduce earnings volatility through fee income, lower their own risk transfer costs and manage their capital bases more effectively.
pool of potential investors is broadening and new money is flowing towards structures offering access to quality business at relatively low cost. These changes are forcing the ABA companies to re-evaluate their business models. Who Are The New Investors? Reinsurance as an asset class has performed relatively well in an environment of low interest rates and is viewed as having limited correlation with broader capital market movements. These attributes have attracted new investors such as pension funds, high net worth individuals and sovereign wealth funds, who typically:
only enter the sector after extensive due diligence;
invest a small percentage of the substantial assets at their disposal as a diversifying strategy;
seek lower, more stable returns over longer timeframes than has historically been the case.
How Is New Money Being Deployed? Much of the new capital is being channelled to specialist fund managers, who then deploy it into the insurance-linked securities (ILS) sector via products such as catastrophe bonds and industry loss warranties, or other ‘alternative’ structures such as sidecars and collateralized reinsurance. The current focus is property catastrophe and retrocession business, particularly in the US market where exposures tend to be best understood, although diversification into other lines and territories is underway.
20
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
Convergence in Action A summary of recent convergence activity among the ABA companies is presented in Exhibit 31. Several are now actively involved in raising and managing third party capital. Others have invested in strategic partnerships with established independent specialist fund managers. Sidecar structures that allow sponsors to grow their footprint in the market without assuming additional balance sheet risk continue to be in vogue. The availability of lower cost capital has allowed most ABA companies to drive down their own risk transfer costs. Retrocession pricing has reduced and in some cases additional protection has been purchased, with consequent impact on disclosed modeled exposures. In addition, a number of catastrophe bond transactions have recently been brought to the market by ABA sponsors.
Exhibit 31: Recent Examples of Convergence Activity Company
Catastrophe Bonds
Third Party Capital Vehicles Altair Re II formed with $95m of capital to provide collateralized support for ACE Tempest Re (Jan 2014).
Other Around 20% of a restructured global cat reinsurance program incepting Jul 1 was placed on a fully collateralized basis, without a reinstatement.
Alleghany
Transatlantic ownership of Pillar Capital increased to 50% (Jun 2014). Operates an internal sidecar (Pangaea Re) and is exploring other facilities. TransRe Capital Partners under development.
Alleghany partnership with Ares Management effective Jul 2013. Investments in Pillar Capital and its managed funds totaled $220m at Jun 30.
Allied World
Partnership with Aeolus Capital effective Dec 2012. Reported to be working on a new reinsurance venture with Pine River Capital.
A restructured cat program provides global aggregate cover (1st event $150m xs $300m; 2nd event $100m xs $100m). The entire program is placed on fully collateralized basis. The largest 1-in-250 PML (US wind) now represents 15.9% of total capital, down from 18.2% in Q1.
In Jul 2014, Amlin agreed to increase its ownership of Leadenhall Capital from 40% to 75% by 2016. SPS 6106 (2009-2013).
The 2014 retro program incorporates the discontinued SPS and has been placed with lower retentions at reduced cost. Tail risk is said to have increased only marginally.
Co-sponsored Watford Re with asset manager Highbridge (Mar 2014). Arch conducts all the underwriting and invested $100m for an 11% stake in the holding company.
Watford Re wrote net premiums of $84m in 1H 2014, of which $69m was for Arch and $15m for third parties. Increased retro purchases reduced Arch's largest 250-year PML for a single event (North-East US wind) to 11% of common shareholders' equity at Jul 1.
Renewed property insurance & reinsurance sidecar Harambee Re (Jan 2014).
Formed ILS fronting partnership with Horseshoe Re (Mar 2014).
Sidecar Silverton Re formed with $65m of capital ($50m from third parties) to provide collateralized quota share support to Aspen Re's property cat book (Jan 2014).
Aspen Capital Markets now has $135m of third party funds under management and has allowed Aspen to grow its cat business on a gross basis, while maintaining similar net exposures.
AXIS Re Ventures formed with $50m of third party capital to cater for investors interested in deploying funds directly into the property cat and related short tail reinsurance business (Jan 2014).
Additional retro purchased on the cat reinsurance book in Jun 2014. The peak 1-in-250 PML has reduced from 17.6% to 15.8% of total shareholders' equity.
ACE
Amlin
Tramline Re II (Jun 2013)
Arch
Argo
Loma Re (Dec 2013)
Aspen
Axis
Northshore Re (Aug 2013)
Beazley
Catlin
SPS 6107 (since 2010). Galileo Re (Oct 2013)
A 'Portfolio Participation Vehicle' provides collateralized reinsurance support for non-syndicate entities (Jan 2014). SPSs 2088, 6111, 6112 and 6119.
Catlin benefits from $300m of third party capital support in 2014, generating fees and commissions of $25m in 1H 2014. An additional $40m of retro cover has been purchased for the Florida book, replacing $100m of expiring ILW cover. Net PMLs have reduced by an average of 40% over the last two years. Purchased $50m of additional global aggregate XL protection in Q2, taking total cover to $150m xs $100m. The peak 1-in-100 year PML reduced to 11.1% of shareholders' equity at Jul 1, 2014, from 12.8% a year earlier.
Endurance
Everest Re
Kilimanjaro Re (Apr 2014)
Permanent sidecar Mt. Logan Re (operating from Jul 2013) now provides around $400m of collateralized property cat capacity, third parties having injected a further $50m in Q2.
Everest Re is growing its property cat book, but has kept its net risk appetite stable in the past six months, by sponsoring its first cat bond (upscaled to $450m) and purchasing ILWs to hold its Florida PML steady.
Hannover Re
Multiple sponsor Structured Alamo Re obo TWIA (Jun 2014)
Multiple sidecar sponsor.
As part of its extended ILS activities, Hannover Re writes collateralized fronting arrangements, passing risks assumed from ceding companies on to institutional investors outside the group using structured entities. Hannover Re opened its internal ILS fund to third parties via Leine Investment from Jan 2013.
Hiscox
Reinsurance sidecar Kiskadee Re is collateralized by third party investors and began operating in Jun 2013. SPS 6104 (since 2008).
Kiskadee Investment Managers deployed $110m of third party capital at Jan 1 and began seeking investors for two new funds. Hiscox Re enjoys growing support from quota share business partners. Partnership with Third Point (Oct 2012).
Lancashire
Kinesis Re I Ltd (formed Jun 2013; Lancashire has a 10% equity interest) Kinesis Capital Management was formed in Jun 2013 to focus on the management of writes multi-class reinsurance business on a fully-collateralized basis, third party capital. Peak exposures have reduced across the board since Apr 2012. deploying ~$340m of limit in the year to Jul 1. Substantially more limit was purchased for risk and cat covers in 2014.
Markel
New Point Re VI commenced writing property retro business on a fully collateralized basis (Jan 2014), backed by $215m of capital.
Erik Manning (ex GC/Deutsche Bank) joined as Managing Director of Alternative Solutions at Markel Re in Jun 2014.
Montpelier Re
Collateralized property cat reinsurance via Blue Water Re and Blue Capital Re.
Blue Capital was launched in 2012 as an asset management platform offering a range of property cat-linked investment products to institutional and retail investors. GPW within the Collateralized Reinsurance segment rose by 71% in 1H 2014.
Munich Re
Multiple structurer Sidecar Eden Re provides $63m of fully collateralized capacity to and sponsor support the property cat book in 2014. Sidecar Lorenz Re formed with $75m of third party capital to provide additional capacity for a diversified portfolio of cat reinsurance treaties over a multi-year period on a fully collateralized basis (Mar 2013).
PartnerRe
Munich Re has operated an internal ILS fund for 6+ years. Third party ILS transactions doubled to $1.2bn in 2013. Increased retro purchases in 2013 and 2014. Property cat exposures have been cut significantly over the past two years. Net limits deployed in respect of natural cat risk totalled $1.4bn at Jun 30, 2014, compared with a Board-approved limit of $2.3bn. Purchased a $50m property cat aggregate cover in Q2, protecting the portfolio against higher return period events for all natural perils in the US, as well as Caribbean hurricanes, Japanese typhoons and Canadian earthquakes.
Platinum
QBE
VenTerra Re (Dec 2013)
RenRe
Mona Lisa Re (Jul 2013)
Upsilon Re renewed with $280m of capital, targeting structured aggregate reinsurance and retro worldwide (Jan 2014).
Internal ILS fund Medici opened to third parties (Jun 2013). Purchased $180m of additional retro to protect peak Florida exposures in Q2. Stake in DaVinci reduced to 26.5% in 1H 2014.
SCOR
Multiple sponsor
Sidecar Atlas X ($55m of capital) provides 3 years of collateralized QS capacity to SCOR Global P&C’s property cat book (Jan 2014).
Alternative Solutions unit created in May 2014, following the formation of Atropos in 2011. Four ILS funds are offered to third party investors (~$300m of AuM at YE 2013).
Swiss Re
Multiple structurer Sector Re sidecar series. and sponsor
No plans to open internal ILS fund to third parties.
Validus
Collateralized property cat and retro underwritten via AlphaCat Re sidecar series ($204m of limit fully deployed in Jan 2014). Top layer cat written via PaCRe (owned 10% by Validus).
White Mountains
Class 3 Bermudian insurer Alstead Re was formed to write collateralized Sirius Capital Markets, launched in May 2013, now operates from offices in Bermuda and reinsurance and retro business from Jan 2014. New York.
XL
Vector Re writes global property cat business on a collateralized basis from Jan 2014.
Source: Company reports, Aon Benfield Market Analysis
At Jun 30, AlphaCat had $1.5bn of AuM, split $0.3bn to Validus and $1.2bn to thirdparties ($165m in the AlphaCat sidecars, $450m in the AlphaCat ILS funds and $575m in PaCRe). Reinsurance was purchased for AlphaCat in Q2.
New Ocean Capital Management was established in partnership with Stone Point in Nov 2013. Vector Re's net assets were $89m at Jun 30. SPS = Special Purpose Syndicate; AuM = assets under management
Aon Benfield Analytics | Market Analysis
21
ABA Valuation The overall market capitalization of the ABA companies has fallen by 4% since the beginning of 2014. The trailing price-to-book ratio has deteriorated from 1.09x to 1.01x over the same period. Exhibit 32: ABA Market Capitalization
Exhibit 34: ABA Trailing Price-to-Book Ratio 1.3
140
1.2
120
1.1
100
1.0
80
0.9 0.8
60
0.7
40 Jan-08
Jan-10
Source: Bloomberg
Jan-12
Jan-14
Note: As of August 29, 2014, excluding Berkshire Hathaway
Jan-10
Source: Bloomberg
Jan-12
Jan-14
Note: As of August 29, 2014, excluding Berkshire Hathaway
Exhibit 33 shows the share price development of individual ABA companies since the beginning of 2014.
Exhibit 35 shows the evolution of the trailing price-to-book values of individual ABA companies since the beginning of 2014.
Exhibit 33: Year-to-Date Share Price Development
Exhibit 35: Trailing Price-to-Book Ratios Beazley Hiscox Amlin Lancashire Markel Arch QBE RenaissanceRe Fairfax Hannover Re ACE Argo Mapfre Everest Re Allied World Endurance Munich Re Montpelier Re Alleghany White Mountains Validus Axis Aspen Platinum PartnerRe XL Catlin Swiss Re SCOR
Fairfax Markel Argo Montpelier Re Alleghany XL PartnerRe RenaissanceRe White Mountains Everest Re Aspen ACE Platinum Swiss Re Axis Hannover Re QBE Endurance Beazley Allied World Amlin Validus Munich Re Arch Mapfre Hiscox Catlin SCOR Lancashire -30% Source: Bloomberg
22
0.6 Jan-08
-20%
-10%
0%
10%
20%
Note: As of August 29, 2014
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
January 1, 2014 August 29, 2014 0.0
Source: Bloomberg
0.5
1.0
1.5
2.0
Financial Strength Ratings Several ABA companies have benefited from positive rating actions in 2014, as shown in Exhibit 36. However, all four leading rating agencies now view the outlook for the reinsurance sector as negative, meaning that downgrades are more likely than upgrades over the medium-term. Exhibit 36: Financial Strength Ratings Main Operating Company
A.M. Best
Standard & Poor’s
ACE Tempest Reinsurance Ltd
A++
Stable
AA
Stable
Allied World Assurance Co Ltd
A
Stable
A
Stable
Amlin AG
A
Stable
A
Stable
Arch Reinsurance Ltd
A+
Stable
A+
Stable
Argo Re Ltd
A
Stable
-
-
Aspen Bermuda Ltd
A
Stable
A
Stable
AXIS Specialty Ltd
A+
Stable
A+
Stable
Beazley Insurance Company, Inc
A
Stable
-
-
Catlin Insurance Company Ltd
A
Stable
A
Stable
Endurance Specialty Insurance Ltd
A
Stable
A
Stable
Everest Reinsurance (Bermuda) Ltd
A+
Stable
A+
Stable
General Reinsurance Corporation
A++
Stable
AA+
Stable
Hannover Rück SE
A+
Stable
AA-
Stable
Hiscox Insurance Company (Bermuda) Ltd
A
Stable
-
-
Lancashire Insurance Company Ltd
A
Stable
A-
Stable
MAPFRE Re, Compania de Reaseguros SA
A
Stable
A
Stable
Markel Bermuda Ltd
A
Stable
A
Stable
Montpelier Reinsurance Ltd
A
Stable
A-
Stable
Munich Reinsurance Co
A+
Stable
AA-
Stable
National Indemnity Company
A++
Stable
AA+
Stable
Odyssey Reinsurance Company
A
Stable
A-
Stable
Partner Reinsurance Co Ltd
A+
Stable
A+
Stable
Platinum Underwriters Bermuda Ltd
A
Stable
A-
Stable
QBE Re (Europe) Ltd
A
Negative
A+
Negative
Renaissance Reinsurance Ltd
A+
Stable
AA-
Stable
SCOR Global P&C SE
A
Stable
A+
Positive
Sirius International Insurance Corp
A
Stable
A-
Stable
Swiss Reinsurance Co
A+
Stable
AA-
Stable
Transatlantic Reinsurance Co
A
Positive
A+
Stable
Validus Reinsurance Ltd
A
Stable
A
Stable
XL Re Ltd
A
Stable
A+
Stable
Source: A.M. Best, Standard & Poor’s
Upgrade / outlook raised since January 1, 2014
Downgrade / outlook lowered since January 1, 2014
Ratings as at September 2014
Aon Benfield Analytics | Market Analysis
23
Appendix 1: ABA Data Exhibit 37: Results for the six months ended June 30, 2014
Reporting Currency (millions)
Company
P&C Gross Premiums Written 1H 2013
P&C Gross Premiums Written 1H 2014
Change
P&C Net Premiums Earned 1H 2013
P&C Net Premiums Earned 1H 2014
Change
Listed Groups ACE
USD
9,953
10,332
4%
6,683
7,328
10%
Alleghany
USD
2,578
2,693
4%
2,143
2,153
0%
Allied World
USD
1,602
1,662
4%
970
1,068
10%
Amlin
GBP
1,839
1,891
3%
1,062
1,118
5%
Arch
USD
2,204
2,567
16%
1,512
1,767
17%
Argo
USD
980
983
0%
632
662
5%
Aspen
USD
1,461
1,635
12%
1,055
1,183
12%
Axis
USD
2,966
3,053
3%
1,820
1,946
7%
Beazley
USD
1,067
1,078
1%
759
805
6%
Catlin
USD
3,299
3,660
11%
1,913
2,038
7%
Endurance
USD
1,750
1,847
6%
963
878
-9%
Everest Re
USD
2,441
2,683
10%
2,240
2,417
8%
Fairfax
USD
3,597
3,837
7%
2,877
2,917
1%
Hannover Re
EUR
4,097
4,078
0%
3,404
3,370
-1%
Hiscox
GBP
1,018
979
-4%
629
643
2%
Lancashire
USD
424
635
50%
261
361
39%
Mapfre
EUR
8,665
8,623
0%
6,568
6,416
-2%
Markel
USD
1,844
2,703
47%
1,349
1,915
42%
USD
504
513
2%
299
319
7%
Munich Re
EUR
8,533
8,478
-1%
8,066
8,028
0%
PartnerRe
USD
2,607
2,719
4%
1,899
2,034
7%
Platinum
USD
283
261
-8%
270
251
-7%
QBE
USD
9,446
8,491
-10%
7,333
6,947
-5%
RenaissanceRe
USD
1,339
1,217
-9%
563
547
-3%
SCOR
EUR
2,378
2,400
1%
2,115
2,059
-3%
Swiss Re
USD
11,538
11,809
2%
8,003
9,044
13%
Validus
USD
1,807
1,668
-8%
1,079
949
-12%
White Mountains
USD
1,261
1,373
9%
993
997
0%
XL
USD
4,349
4,540
4%
2,953
2,851
-3%
ABA (Listed Sector)
USD
104,803
109,075
4%
77,644
81,562
5%
Gen Re
USD
485
578
19%
276
279
1%
NICO
USD
3,572
18,217
410%
3,129
14,753
372%
ABA (Total)
USD
108,860
127,871
17%
81,050
96,594
19%
Montpelier Re 1
Source: Company reports, Aon Benfield Market Analysis Figures in reporting currencies, but converted to USD (millions) for ABA lines
24
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
1
P&C reinsurance segment only (as disclosed)
Exhibit 37: Results for the six months ended June 30, 2014 (cont’d) Calendar Year Loss Ratio 1H 2013
Loss Ratio 1H 2014
Expense Ratio 1H 2013
ACE
58.0%
58.0%
30.1%
30.2%
88.1%
88.2%
0.2pp
Alleghany
56.8%
57.6%
31.0%
31.8%
87.9%
89.4%
1.5pp
Allied World
54.6%
55.3%
29.3%
29.8%
84.0%
85.1%
1.2pp
Amlin
53.1%
53.7%
31.9%
33.3%
85.0%
87.0%
2.1pp
Arch
54.1%
52.2%
31.9%
33.5%
86.0%
85.7%
-0.4pp
Argo
58.4%
55.5%
40.4%
40.1%
98.8%
95.7%
-3.2pp
Aspen
57.1%
52.9%
36.6%
36.0%
93.7%
88.8%
-4.9pp
Axis
59.4%
57.0%
33.3%
34.3%
92.7%
91.3%
-1.4pp
Beazley
52.0%
51.0%
37.0%
39.0%
89.0%
90.0%
1.0pp
Catlin
54.6%
50.6%
33.5%
34.4%
88.1%
85.0%
-3.2pp
Endurance
60.0%
49.7%
30.2%
35.4%
90.2%
85.0%
-5.2pp
Everest Re
58.2%
56.1%
26.0%
26.4%
84.2%
82.5%
-1.7pp
62.3%
60.5%
31.8%
32.3%
94.1%
92.8%
-1.2pp
68.6%
69.2%
26.0%
26.1%
94.6%
95.3%
0.7pp
Hiscox
37.5%
38.5%
37.2%
43.5%
74.7%
82.0%
7.3pp
Lancashire
23.5%
34.5%
35.3%
36.1%
58.8%
70.6%
11.8pp
Mapfre
67.2%
67.9%
27.9%
27.8%
95.1%
95.7%
0.6pp
Markel
54.1%
60.2%
43.9%
37.7%
98.0%
97.9%
-0.1pp
Company
Expense Ratio 1H 2014
Combined Ratio 1H 2013
Combined Ratio 1H 2014
Change
Listed Groups
Fairfax 1
Hannover Re 3
Montpelier Re
32.6%
29.4%
32.9%
34.4%
65.5%
63.8%
-1.7pp
Munich Re
62.9%
63.5%
29.6%
30.7%
92.5%
94.2%
1.7pp
PartnerRe
61.4%
57.3%
28.6%
30.5%
90.0%
87.8%
-2.2pp
Platinum
28.4%
30.8%
32.3%
32.7%
60.7%
63.5%
2.8pp
QBE
59.4%
63.1%
33.3%
33.4%
92.8%
96.5%
3.7pp
RenaissanceRe
23.3%
25.7%
25.8%
28.5%
49.1%
54.1%
5.0pp
SCOR
64.5%
60.4%
29.7%
30.5%
94.3%
90.9%
-3.4pp
Swiss Re
55.8%
56.4%
30.2%
31.2%
86.0%
87.6%
1.6pp
Validus
38.0%
33.9%
31.7%
34.6%
69.7%
68.5%
-1.2pp
White Mountains
52.3%
51.4%
34.0%
35.8%
86.3%
87.2%
0.9pp
XL
60.3%
58.2%
30.5%
30.8%
90.8%
89.0%
-1.7pp
59.2%
59.0%
30.7%
31.4%
89.9%
90.3%
0.5pp
53.9%
38.2%
41.0%
41.7%
94.9%
79.9%
-14.9pp
3
42.9%
84.0%
25.4%
13.1%
68.3%
97.1%
28.8pp
ABA (Total)
58.5%
62.7%
30.5%
28.6%
89.0%
91.4%
2.3pp
2
ABA (Listed Sector) 3
Gen Re NICO
Source: Company reports, Aon Benfield Market Analysis
1 Excluding funds withheld P&C reinsurance segment only (as disclosed) 3 As calculated by Aon Benfield Market Analysis 2
Aon Benfield Analytics | Market Analysis
25
Exhibit 37: Results for the six months ended June 30, 2014 (cont’d) Accident Year Prior Year Reserve Adjustment 1H 2013
Company
Prior Year Reserve Adjustment 1H 2014
Prior Year Reserve Adjustment as % of NPE 1H 2013
Prior Year Reserve Accident Year Accident Year Adjustment as Combined Combined % of NPE Ratio Ratio 1H 2014 1H 2013 1H 2014
Change
Listed Groups ACE
-198
-188
3.0%
2.6%
91.0%
90.8%
-0.2pp
Alleghany
-134
-102
6.2%
4.7%
94.1%
94.1%
0.0pp
-92
-94
9.5%
8.8%
93.5%
93.9%
0.4pp
Allied World Amlin
-61
-40
5.8%
3.6%
90.8%
90.6%
-0.1pp
Arch
-124
-176
8.2%
9.9%
94.2%
95.6%
1.4pp
Argo
-17
-23
2.7%
3.5%
101.6%
99.2%
-2.4pp
Aspen
-54
-60
5.1%
5.1%
98.8%
93.9%
-4.9pp
Axis
-97
-129
5.3%
6.6%
98.0%
98.0%
0.0pp
Beazley
-61
-73
8.0%
9.1%
97.0%
99.1%
2.1pp
Catlin
-56
-49
2.9%
2.4%
91.0%
87.4%
-3.7pp
Endurance
-113
-105
11.8%
11.9%
102.0%
96.9%
-5.1pp
Everest Re
-1
-3
0.0%
0.1%
84.3%
82.6%
-1.6pp
-142
-131
4.9%
4.5%
99.0%
97.3%
-1.7pp
0
33
0.0%
-1.0%
94.6%
94.3%
-0.3pp
-74
-90
11.7%
14.0%
86.4%
96.0%
9.6pp
Fairfax 1
Hannover Re Hiscox Lancashire
-7
2
2.8%
-0.5%
61.7%
70.1%
8.5pp
Mapfre
n.d.
n.d.
n.d.
n.d.
n.d.
n.d.
n.d.
Markel
-204
-167
15.1%
8.7%
113.1%
106.6%
-6.5pp
-66
-73
22.1%
22.8%
87.7%
86.6%
-1.1pp
Munich Re
-250
-320
3.1%
4.0%
95.6%
98.2%
2.6pp
PartnerRe
-310
-325
16.3%
16.0%
106.3%
103.7%
-2.6pp
Montpelier Re 2
Platinum
-99
-76
36.6%
30.1%
97.3%
93.6%
-3.7pp
QBE
178
131
-2.4%
-1.9%
90.3%
94.6%
4.3pp
RenaissanceRe
-64
-34
11.4%
6.2%
60.6%
60.3%
-0.3pp
SCOR
-31
0
1.5%
0.0%
95.7%
90.9%
-4.9pp
Swiss Re
-445
-296
5.6%
3.3%
91.6%
90.9%
-0.7pp
Validus
-107
-112
9.9%
11.8%
79.6%
80.3%
0.7pp
White Mountains XL ABA (Listed Sector) 3
Gen Re NICO
3
ABA (Total)
-14
-7
1.4%
0.7%
87.7%
87.9%
0.2pp
-150
-123
5.1%
4.3%
95.8%
93.4%
-2.5pp
-2,955
-2,822
3.8%
3.5%
93.7%
93.8%
0.1pp
-70
-60
25.5%
21.5%
120.3%
101.5%
-18.9pp
-652
-314
20.8%
2.1%
89.1%
99.3%
10.1pp
-3,677
-3,196
4.5%
3.3%
93.6%
94.7%
1.1pp
Source: Company reports, Aon Benfield Market Analysis Figures in reporting currencies, but converted to USD (millions) for ABA lines n.d. = not disclosed
26
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
1 Excluding funds withheld P&C reinsurance segment only (as disclosed) 3 As calculated by Aon Benfield Market Analysis 2
Exhibit 37: Results for the six months ended June 30, 2014 (cont’d)
Net Investment Income 1H 2013
Net Investment Income 1H 2014
Capital Gains / Losses 1H 2013
Capital Gains / Losses 1H 2014
Total Investment Return 1H 2013
Total Investment Return 1H 2014
Change
1,065
1,109
310
-177
1,375
932
-32%
219
225
37
132
256
357
39%
Allied World
71
84
-36
139
35
224
531%
Amlin
24
25
37
51
61
76
24%
Arch
159
152
53
56
212
208
-2%
Argo
53
44
21
30
74
74
0%
Company Listed Groups ACE Alleghany
Aspen
94
96
9
45
103
141
37%
192
198
43
57
235
254
8%
Beazley
29
27
-29
20
0
47
n.m.
Catlin
54
63
-45
79
9
142
n.m.
Endurance
82
80
16
6
98
86
-12%
Everest Re
295
254
161
80
455
335
-27%
Fairfax
258
254
-97
1,656
161
1,910
n.m.
Hannover Re
650
619
39
88
689
708
3%
Hiscox
21
20
1
9
22
29
33%
Lancashire
23
16
12
-4
35
12
-64%
Mapfre
768
1,013
41
58
809
1,071
32%
Markel
143
179
29
25
172
203
18%
Axis
Montpelier Re
33
25
-62
43
-29
68
n.m.
3,522
3,330
18
982
3,540
4,312
22%
PartnerRe
248
247
-276
308
-28
555
n.m.
Platinum
36
35
23
-1
59
34
-43%
330
339
29
89
359
428
19%
79
85
-55
42
24
127
435%
1
Munich Re
QBE RenaissanceRe SCOR
216
240
-7
48
209
288
38%
1,948
2,119
516
509
2,464
2,628
7%
Validus
55
51
-143
113
-88
163
n.m.
White Mountains
57
53
38
178
95
231
143%
558
498
77
100
635
598
-6%
12,921
13,441
809
5,235
13,730
18,676
36%
1
Swiss Re
XL ABA (Listed Sector) Gen Re NICO ABA (Total)
512
445
40
-35
552
410
-26%
2,967
2,996
-20
1,653
2,946
4,649
58%
16,399
16,882
829
6,853
17,228
23,735
38%
Source: Company reports, Aon Benfield Market Analysis Figures in reporting currencies, but converted to USD (millions) for ABA lines n.m. = not meaningful
1
Reported through income statements, excluding unit-linked and with-profit business
Aon Benfield Analytics | Market Analysis
27
Exhibit 37: Results for the six months ended June 30, 2014 (cont’d) Pre-Tax Result 1H 2013
Pre-Tax Result 1H 2014
Change
Pre-Tax Operating ROE* 1H 2013
Pre-Tax Operating ROE* 1H 2014
Change
2,081
1,739
-16%
12.9%
13.0%
0.0pp
Alleghany
400
471
18%
11.3%
9.4%
-1.8pp
Allied World
158
352
122%
11.6%
11.8%
0.2pp
Amlin
160
147
-9%
15.6%
11.4%
-4.2pp
Arch
443
402
-9%
15.0%
10.9%
-4.1pp
Argo
80
87
9%
8.0%
7.2%
-0.7pp
Aspen
139
261
88%
7.7%
12.6%
4.9pp
Axis
401
364
-9%
12.6%
10.4%
-2.2pp
82
133
61%
18.8%
17.3%
-1.4pp
Catlin
145
318
119%
10.9%
12.4%
1.5pp
Endurance
165
188
14%
10.9%
12.1%
1.2pp
Everest Re
792
717
-9%
18.9%
17.3%
-1.7pp
-195
1,643
n.m.
-2.3%
-0.3%
1.9pp
Hannover Re
630
635
1%
18.3%
16.1%
-2.2pp
Hiscox
181
125
-31%
26.1%
16.9%
-9.2pp
Lancashire
137
99
-28%
18.9%
13.9%
-5.0pp
Mapfre
866
942
9%
16.2%
17.2%
0.9pp
Markel
163
170
4%
5.2%
4.2%
-1.0pp
73
147
101%
16.4%
11.0%
-5.4pp
1,902
1,999
5%
14.2%
7.5%
-6.6pp
PartnerRe
23
716
n.m.
9.0%
11.9%
2.9pp
Platinum
146
106
-27%
13.5%
12.2%
-1.3pp
QBE
585
487
-17%
9.8%
7.3%
-2.5pp
RenaissanceRe
272
362
33%
14.6%
13.0%
-1.7pp
SCOR
237
336
42%
10.2%
11.4%
1.1pp
2,600
2,486
-4%
13.0%
11.9%
-1.1pp
Validus
183
443
142%
15.2%
15.2%
-0.1pp
White Mountains
155
221
42%
5.6%
1.9%
-3.6pp
Company Listed Groups ACE
Beazley
Fairfax
Montpelier Re Munich Re
Swiss Re
XL ABA (Listed Sector) Gen Re NICO ABA (Total)
671
-29
n.m.
10.3%
-2.3%
-12.6pp
15,002
17,699
18%
12.5%
10.3%
-2.2pp
568
468
-18%
10.2%
8.5%
-1.6pp
3,445
4,633
34%
8.3%
6.1%
-2.3pp
19,015
22,799
20%
11.3%
9.0%
-2.3pp
Source: Company reports, Aon Benfield Market Analysis Figures in reporting currencies, but converted to USD (millions) for ABA lines n.m. = not meaningful
28
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
*Calculated by excluding the impact of net realized and unrealized investment gains/losses reported through income statements
Exhibit 37: Results for the six months ended June 30, 2014 (cont’d) Common Net Income 1H 2013
Common Net Income 1H 2014
Change
Return on Equity* 1H 2013
Return on Equity* 1H 2014
Change
1,844
1,513
-18%
13.5%
10.2%
-3.2pp
Alleghany
310
354
14%
9.6%
9.9%
0.3pp
Allied World
157
329
109%
9.4%
18.3%
8.9pp
Amlin
140
136
-3%
17.8%
16.3%
-1.6pp
Arch
422
380
-10%
17.3%
13.5%
-3.8pp
Argo
64
79
22%
8.6%
9.9%
1.3pp
Aspen
115
232
101%
8.1%
16.2%
8.1pp
Axis
375
328
-13%
14.7%
12.5%
-2.2pp
72
114
58%
12.2%
17.5%
5.3pp
Catlin
118
273
131%
8.1%
16.7%
8.5pp
Endurance
145
171
18%
12.6%
13.3%
0.7pp
Everest Re
660
584
-11%
19.8%
16.3%
-3.4pp
Fairfax
-27
1,119
n.m.
-0.7%
29.1%
29.8pp
Hannover Re
423
444
5%
14.6%
14.5%
-0.1pp
Hiscox
158
120
-24%
23.0%
17.5%
-5.5pp
Lancashire
134
105
-22%
20.2%
14.2%
-6.1pp
Mapfre
456
458
0%
11.6%
11.2%
-0.4pp
Markel
117
128
10%
4.6%
3.7%
-0.9pp
65
127
96%
8.9%
16.9%
7.9pp
1,491
1,684
13%
11.3%
12.6%
1.3pp
PartnerRe
20
553
2643%
0.7%
18.6%
17.9pp
Platinum
136
100
-27%
15.0%
11.3%
-3.6pp
QBE
477
392
-18%
8.5%
7.3%
-1.2pp
RenaissanceRe
217
272
25%
13.9%
15.7%
1.8pp
SCOR
189
256
35%
8.0%
10.2%
2.2pp
2,166
2,028
-6%
13.5%
12.2%
-1.3pp
Validus
254
316
24%
13.3%
16.9%
3.6pp
White Mountains
147
191
30%
7.9%
9.5%
1.6pp
Company Listed Groups ACE
Beazley
Montpelier Re Munich Re
Swiss Re
XL ABA (Listed Sector) Gen Re NICO ABA (Total)
623
-24
n.m.
12.2%
-0.5%
-12.7pp
12,435
13,988
12.5%
11.6%
12.2%
0.6pp
539
355
-34%
10.4%
6.0%
-4.3pp
3,029
4,060
34%
7.3%
8.2%
0.9pp
16,004
18,403
15%
10.4%
10.8%
0.5pp
Source: Company reports, Aon Benfield Market Analysis Figures in reporting currencies, but converted to USD (millions) for ABA lines n.m. = not meaningful
*Common net income as a percentage of average common equity
Aon Benfield Analytics | Market Analysis
29
Exhibit 37: Results for the six months ended June 30, 2014 (cont’d) Cash and Investments FY 2013
Cash and Investments 1H 2014
Change
Shareholders’ Funds FY 2013
Shareholders’ Funds 1H 2014
Change
ACE
61,977
64,684
4%
28,825
30,325
5%
Alleghany
19,490
19,683
1%
6,924
7,398
7%
Allied World
9,026
9,205
2%
3,520
3,683
5%
Amlin
4,510
4,401
-2%
1,678
1,670
0%
Arch
14,050
16,111
15%
5,647
6,229
10%
Argo
4,237
4,184
-1%
1,563
1,633
4%
Aspen
8,300
8,653
4%
3,300
3,554
8%
14,768
15,678
6%
5,818
5,956
2%
Beazley
4,430
4,387
-1%
1,339
1,262
-6%
Catlin
9,209
9,286
1%
3,783
3,954
5%
Company Listed Groups
Axis
Endurance
6,575
6,755
3%
2,887
3,116
8%
Everest Re
16,824
17,868
6%
6,968
7,323
5%
Fairfax
24,893
26,413
6%
8,353
9,361
12%
Hannover Re
46,149
47,080
2%
5,888
6,412
9%
Hiscox
3,157
3,026
-4%
1,409
1,332
-6%
Lancashire
2,484
2,529
2%
1,460
1,504
3%
Mapfre
40,133
43,637
9%
7,834
8,485
8%
Markel
17,612
18,236
4%
6,674
7,143
7%
3,306
3,426
4%
1,642
1,668
2%
Munich Re
203,556
211,000
4%
25,983
27,422
6%
PartnerRe
18,274
18,326
0%
6,710
6,910
3%
Platinum
3,612
3,517
-3%
1,747
1,778
2%
30,632
31,373
2%
10,356
11,228
8%
7,230
7,001
-3%
3,904
3,836
-2%
23,755
23,776
0%
4,940
5,110
3%
143,332
145,392
1%
32,952
33,628
2%
Validus
8,110
8,135
0%
3,704
3,777
2%
White Mountains
8,003
8,001
0%
3,906
4,106
5%
Montpelier Re 1
QBE RenaissanceRe SCOR 1
Swiss Re
XL ABA (Listed Sector) Gen Re NICO ABA (Total)
36,192
31,896
-12%
9,998
10,034
0%
917,848
939,108
2%
228,672
239,480
5%
15,810
16,085
2%
11,562
12,020
4%
148,939
161,943
9%
97,226
99,765
3%
1,082,597
1,117,137
3%
337,460
351,264
4%
Source: Company reports, Aon Benfield Market Analysis Figures in reporting currencies, but converted to USD (millions) for ABA lines
30
The Aon Benfield Aggregate – Results for the six months ended June 30, 2014
1
Excluding unit-linked and with-profit business
Contacts Mike Van Slooten
Jonny Eggins
Head of Market Analysis - International Aon Benfield Analytics +44.207.7522.8106
[email protected]
Analyst Market Analysis - International Aon Benfield Analytics +44.207.7522.3898
[email protected]
Mike McClane Head of Market Analysis - Americas Aon Benfield Analytics +1.215.751.1596
[email protected]
Marie Teissier Analyst Market Analysis - International Aon Benfield Analytics +44.207.7522.3951
[email protected]
Eleanore Obst Analyst Market Analysis - International Aon Benfield Analytics +44.207.7522.3823
[email protected]
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Aon Benfield Analytics | Market Analysis
31
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