RAA survey shows profitable underwriting, but falling netwritten premiums

By michael ha

The U.S. reinsurance sector saw its net income and combinedratio for 2005's first quarter remain virtually unchanged comparedto a year ago, although net written premiums dropped more than 10percent, according to the Reinsurance Association of America.

The Washington-based RAA reported that 26 major U.S.property-casualty reinsurers in aggregate had a 93.9 combined ratiofor the first quarter, down 0.1 points from the 94.0 figurereported by a similar group of reinsurers one year ago. The RAAresults were based on a survey of reinsurer statutory underwritingfigures.

The 93.9 combined ratio reported this past quarter by the 26U.S. reinsurers reflects a 68.2 loss ratio and a 25.7 expenseratio.

U.S. reinsurers also reported little change in aggregate netincome, which was $1.44 billion for the 2005 first quarter–up 1percent from $1.42 billion last year. Net written premiums,however, fell 10.4 percent, to $7.01 billion from $7.82billion.

According to the RAA survey, aggregate policyholder surplus was$61.68 billion, up 9.7 percent from $56.21 billion a year ago.

“This first-quarter combined ratio looks pretty strong, butthere is also a seasonal aspect involved here,” Fitch Ratingsanalyst Mark Rouck commented.

“Obviously the main hurricane season hasn't happened yet, and asto the extent companies do reserve studies, that tends to happen inthe fourth quarter,” Mr. Rouck noted.

He also observed that U.S.-based reinsurer combined ratioscontinue to lag behind those in other marketplaces such asBermuda.

“When you look at the broader spectrum of reinsurers, includingthe Bermuda-domiciled companies, those combined ratios in aggregatehave been better than what the RAA ratios have been for U.S.-basedreinsurers,” Mr. Rouck noted.

Commenting on falling net written premiums, Mr. Rouck said thereare two main factors driving this decline.

o First, “there are just some pressures on rates overall. Ourview is that the rates have been under pressure for some time nowand that's starting to impact these results,” he said.

o Second, since the RAA data comes from a small universe of U.S.companies, it tends to be driven by a few large U.S.-basedreinsurers, some of which have been pruning their books ofbusiness, he added.

“When you look at GE Insurance Solutions, its numbers droppedoff by almost 25 percent year-over-year,” Mr. Rouck said. Indeed,GE Insurance Solutions' net written premiums for the 2005 firstquarter were $615 million–down from $800 million a year ago.

National Indemnity's net written premiums were also downsignificantly–falling 28 percent to $928 million from $1.288billion, while General Re Group saw its net written premiums fall30 percent to $505 million from $723 million.

Looking at best performers in major categories for the 2005first quarter, Trenwick America Reinsurance Corp. had the lowestcombined ratio among U.S. reinsurers, at 45.3, while NationalIndemnity Company had the biggest underwriting profit–$261million.

GE Insurance Solutions had the largest net income, at $536million, helped by its federal and foreign income tax benefit thatcame out to be $374 million. National Indemnity's $928 million netwritten premiums were the biggest among the group.

Flag: By The Numbers

U.S. Re Sector Steady

? $1.44 Billion–net income, up 1 percent from a year ago.

? 93.0–combined ratio, down 0.1 points.

? $7.01 Billion–net written premiums, down 10.4 percent.

? $61.68 Billion–policyholder surplus, up 9.7 percent.