Reinsurers’ net profit slumped 70% last year to $US5.4 billion ($7 billion) while property and casualty combined operating ratios blew out due to losses related to COVID-19, an Aon report shows.

The Aon Reinsurance Aggregate includes 23 companies that underwrite just over half of the world’s life and non-life reinsurance premiums.

Aggregate combined COVID-19 losses last year reached $16.4 billion ($21.1 billion), adding to natural catastrophe losses of $US8.7 billion ($11.2 billion).

The combined ratio widened to 103.4% from 100.2% as an eight-percentage-point impact from the pandemic offset improvements in natural catastrophe losses, attributional losses and expenses.

Total gross written premium rose 6% to $US294 billion ($378.7 billion), while the ordinary investment yield fell to a new low of 2.3% due to capital market volatility associated with COVID-19 and emergency interest rate cuts.

Aon estimates global reinsurer capital increased to a new high of $US650 billion ($837.2 billion) at the end of the year supported by a capital markets recovery from the first-quarter COVID shock, equity issuance and a US dollar depreciation.

Traditional capital rose to $US556 billion ($716 billion) from $US530 billion ($682 billion) while alternative capital slipped to $US94 billion ($121 billion) from $US95 billion ($122 billion).

Aon says the industry has demonstrated resilience in tough circumstances, but the combined ratio has averaged 102.3% in the past four years and the return on equity has averaged 4.8%, representing a significant shortfall relative to the cost of capital.

“Headline results have been poor in three of the last four years, but the underlying picture is now improving as recent adjustments to pricing and other terms and conditions feed through,” Aon Reinsurance Solutions Head of Business Intelligence Mike Van Slooten said.

The report says COVID-19 will remain a headwind this year and uncertainty over ultimate related losses will be a factor in maintaining underwriting discipline, alongside deteriorating trends in casualty reserving, the impact of climate change and low interest rates.