Reinsurers maintained profits last year despite declining rates, but Aon Benfield has flagged danger signals for the industry.

“Earnings are becoming increasingly reliant on unsustainable factors such as benign catastrophe experience, material reserve releases and capital gains,” it says in its aggregate report analysing financial results of major insurers last year.

Increasing competition and low interest rates are also putting pressure on companies.

Reinsurer capital gained 5% to $US575 billion ($748.34 billion) at the end of the year, the report says.

Alternative capital such as catastrophe bonds comprised only 12.5% of the total, at $US64 billion ($83.29 billion), but that was up 28% on 2013.

Traditional capital grew 4% to $US511 billion ($665.04 billion), which Aon says was helped by low catastrophe losses, economic recovery in the US, growth in emerging markets and relatively stable capital market conditions.

Net catastrophe losses fell to 3.8% of net premium earned from 5.6%, and were well below the long-term average.

Aon notes the 29 companies it surveyed increased property and casualty premiums by 2% to $US198 billion ($257.69 billion) despite the difficult conditions.

Their total combined operating ratio improved 0.3 percentage points to 89.9% on low catastrophe losses, and investment income was up 2% on asset growth and portfolio repositioning.

“Investment returns have been resilient despite the impact of low interest rates.”

Most of the companies have increased dividends and some have made special dividends or held share buybacks.

Head of Aon Benfield’s international market analysis team Mike Van Slooten says mergers and acquisitions in the sector are being driven by companies seeking scale and diversification, “one of the drivers being enhanced access to alternative capital”.

Reinsurers’ profitability was in line with the previous two years.