The global reinsurance industry continues to take a beating, demonstrated aptly with the recent announcement by Gerling Group to put its U.S. subsidiary into run-off.
Gerling Group said it will focus its attention on European non-life markets and worldwide life reinsurance business, "concentrating on profitable markets and business segments."
The company said it expects that the New York-based Gerling Global Reinsurance Corp. of America will proceed with a solvent run-off.
"We have a sufficient range of reserves and think we have the best estimate level for those reserves. Furthermore, we expect commutation gains," said Christoph Groffy, a company representative in Cologne, Germany. (See NU, March 25, for an article on Gerlings capital injection.)
Gerlings other U.S. holding, Constitution Insurance Company in New York, also has been put into run-off, according to Mr. Groffy. He noted that the company also is expected to be a solvent runoff.
"Constitution plans to sell its 43 licenses in the United States," said Mr. Groffy.
Constitution was purchased by Gerling in 1998 and has not proven to be a good acquisition, according to Lynn Exton, senior vice president in the financial institutions group for Moodys Investors Service in London.
"The perception was that they had overpaid at that time," she said in an interview. (The transaction was valued at $700 million).
"Clearly one has to ask about the quality and the extent of the due diligence. Then again, theyre not the first and they certainly wont be the last European company to have had a flawed due diligence process," said Ms. Exton.
The decision by Gerling brought immediate action by the ratings agencies.
A.M. Best Company in Oldwick, N.J., on Aug. 2 downgraded the financial strength ratings of GGRCA and its subsidiary, Constitution Insurance Company, to "B-plus" (Very Good) from "A-minus" (Excellent). The ratings remain under review with negative implications.
"A.M. Best remains concerned that further adverse claims development from GGRCAs portfolio could place additional strain on its weakened capitalization," said the rating company in a statement.
Moodys on Aug. 2 lowered the insurance financial strength rating on Gerling Global Reinsurance Corp. of America from "A3" to "Ba2" and subsequently withdrew the rating. There is a great deal of uncertainty about the prospects for a solvent run-off for GGRCA, said Ms. Exton.
GGRCA reported a statutory net loss of $25.6 million and policyholders surplus of $487.9 million, noted Moodys.
Standard & Poors on Aug. 2 said it lowered its counterparty credit and financial strength ratings on GGRCA to "Triple B" from "Single A-minus." At the same time, S&P put these ratings on "CreditWatch" with negative implications.
"In the past five years, GGRCA has been battered by poor underwriting performance and loss reserve strengthening, which have led the company to post net losses for the past three years from 1999-2001," said S&Ps credit analyst, Laline Carvalho, in a statement.
"Standard & Poors expects the CreditWatch resolution to be primarily dependent on its assessment of GGRCAs loss reserve adequacy and the amount of capital that will remain available at GGRCA to service the companys run-off obligations," he added.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 12, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.