Lack of Cat Losses Key to Reinsurers’ Flush of Capital

The lack of major natural disasters helped the reinsurance industry replenish its capital base last year, according to a report by Aon Benefield.

But 2010 could turn out to be a significantly different story for the industry, which has suffered at least two significant loss events before the tumultuous North Atlantic hurricane season.

“[R]ecent events, including the Chilean earthquake and Windstorm Xynthia, may temper reinsurers’ plans to return capital to shareholders until the full extent of the losses, and their impact on the industry, are known,” says Aon Benefield’s Aggregate report issued last week.

Industry-wide losses from these events range from $2.8 billion to $3 billion after-tax, according to Moody’s.

The reinsurance industry spent most of last year recovering from the catastrophe and investment losses it experienced in 2008.

A total of 288 natural and man-made disasters caused insurance losses of $26 billion during 2009, which ranked ranked as the eleventh highest loss year since 1970, according to Aon.

But the losses were manageable for the reinsurance industry and lower catastrophe claims led to a 6.5 percent improvement in the overall industry’s loss ratio to 90.9 percent.

This marked a strong contrast to 2008, which, with insurance losses of $52.5 billion, was one of the costliest catastrophe years in history. Aon added that major natural catastrophes like Hurricanes Gustav and Hurricane Ike accounted for $4 billion and $20 billion in losses respectively.

The recovery of the investment markets was also key for reinsurers. Realized capital gains contributed $1 billion, compared with realized losses of $17 billion in 2008, according to Aon.

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