On the eve of the annual Reinsurance Rendezvous in Monte Carlo, Aon Benfield has reported that reinsurance capital in the industry has hit record levels.

The leading reinsurance broker puts total reinsurer capital on June 30 at $US480 billion ($465 billion) – a record amount that is up $US25 billion ($24.2 billion) from December 31 last year.

The annual Aon Benfield Aggregate report, which analyses the financial position of 31 of the world’s leading reinsurers, includes both traditional and non-traditional forms of reinsurance capital.

It says that higher pricing has resulted in a 6% rise in gross written premium across the group of reinsurers, and that the group-wide first-half combined operating ratio stands at 90.1%, compared to 117.8% for the first half of last year.

Mike Van Slooten, Head of Aon Benfield’s International Market Analysis team, said this is in “stark contrast to the prior year”.

“The relatively low level of insured catastrophe losses in the first half of 2012 allowed most companies to report good earnings and consequent capital growth,” he says in the report.

Aon Benfield estimates capital entering the market from new sources over the first six months of the year at $US5 billion ($4.8 billion), slightly below the estimate from ratings agency Moody’s of $US6 billion ($5.8 billion).

Moody’s says in its just-released Global Reinsurance Outlook that alternative capital in the reinsurance sector now totals $US34 billion ($33 billion).

It says the industry outlook remains stable, and that the industry’s plentiful capital is both a positive and a negative. 

With “dwindling prospects” in casualty and life reinsurance, this extra capital is predominantly available for catastrophe programs. Moody’s says it is “credit-negative for incumbent reinsurers” thanks to its tendency to keep a lid on pricing, in turn driving down revenue and margins.

On the upside, Moody’s notes that new capital could be “a saving grace for wounded reinsurers”.

“Reinsurers who find it hard to recapitalise in equity markets may still be able to find partners for sidecars, which will allow them to keep writing business and maintain a franchise,” the ratings agency said.

Despite emerging from last year’s events relatively unscathed, the industry’s stability could face downward pressure from such factors as a large disaster, faltering primary rates or worsening of the global economy.

Meanwhile, a new report from Standard & Poor’s focusing on reinsurance in the Asia-Pacific region says the 2011 cat losses will continue to push up reinsurance prices and tighten terms and conditions locally for the rest of 2012.

The report says losses from both last year’s floods in Thailand and earthquakes in New Zealand have particularly tested the market as they represent risks that were not modelled or adequately priced.

Also see ANALYSIS