A shift to catastrophe reinsurance is making it increasingly hard for reinsurers to diversify their income streams, according to reinsurance broker Aon Benfield.

In a new report – Record Reinsurance Performance and Capital – the company says reinsurers are becoming more catastrophe risk-centric with increasing demand for such cover from cedants.

Aon Benfield says demand for property catastrophe reinsurance is increasing but demand for other reinsurance has fallen as insurers benefit from a decade of declining frequency and “very manageable” severity increases in most non-catastrophe lines.

“Insurers have received less benefit from non-catastrophe reinsurance contracts than they anticipated and demand has fallen accordingly,” the report says.

“The declining frequency in non-catastrophe lines continues to erode the diversified business plan of reinsurers.”

Aon Benfield Analytics Chairman Bryon Ehrhart says reinsurers have become more property catastrophe-centric and are aligning capital flows that are specifically interested in the dynamics of catastrophe risks and returns.

“We expect reinsurers will increasingly launch funds management programs over the next few years.”

Another Aon Benfield report, Credit Risk of Property Catastrophe Reinsurers, highlights the strength of the reinsurance sector during the past 12 years.

The report, which examines credit quality since 2000, says in that time only eight reinsurers have been declared insolvent, despite the industry paying out claims of more than $US150 billion ($141.8 billion).

The insolvencies accounted for less than 1% of global reinsurer capital and the companies still managed to settle 99% of outstanding obligations.

“Reinsurance is one of the most secure and accretive forms of capital available in the global marketplace,” Aon Benfield Head of Global Rating Agency Advisory Kelly Superczynski said. “As risk analysis tools and capital management techniques become ever more comprehensive this level of security should continue to improve.”

The reports were released to coincide with the recent Reinsurance Rendezvous in Monte Carlo.

Also see ANALYSIS