Reinsurer Combined Ratios Rising

By Steve Tuckey

The combined ratio for 26 leading U.S.-based reinsurersdeteriorated for the first six months of 2005, rising nearly 10points compared to the same period last year, according to theReinsurance Association of America.

The combined ratio of the survey group rose to 105.8 this year,compared to 96.3 in the first six months of 2004, RAA noted.

Fitch Ratings analyst Mark Rouck said the combined ratio jumpseemed a bit high but attributed much of it to the fact thatAmerican Reinsurance Corp. was included.

"Otherwise, it is mainly a softening premium environment, sincecatastrophes for the most part did not play that big a role in thefirst half of this year," he said.

Last month, Princeton-based American Re added $1.4 billion toits loss reserves, leading the company to report a second-quarternet loss of $1.4 million, compared to net income of $106 million in2004. "The reserve strengthening was certainly a major impact onour financials," said American Re Chairman John Phelan.

As a result, the company will be integrated even more closelywith its parent--the Munich Re Group--through extendedretrocessional covers, Mr. Phelan said.

According to a report issued by the London-based Benfield GroupLtd., the softening 2005 market should come as no surprise to thosewho kept a close watch on renewal activity in January. Benfieldsaid the fact that the catastrophe-laden second half of 2004 didnot cripple the industry made underwriters overconfident.

"As a result, 2005 renewals saw a familiar disconnect betweenthe avowals of continued discipline by senior reinsurer managementand actual underwriter behavior," the report stated.

Thus, the "feel-good" factor coming from robust balance sheetsis driving a renewed focus on marketshare and fueling competitivepressures, the report added.

Mr. Rouck of Fitch also noted that the premium ratingenvironment showed some signs of weakening during the January 2005renewal season. But on a more hopeful note, he said that anyinevitable softening will not be a repeat of the last suchcycle.

"For one thing, the period of prolonged and abnormally highequity market returns, similar to what we enjoyed in the late1990s, is unlikely to reoccur in the near term," Mr. Rouck said,adding that the prior bull market in stocks helped plungereinsurance prices to an usually low level.

Do this as a Big Numbers chart

Head: By The Numbers (no flag)

105.8--First-half combined ratio, 2005

96.3--Combined ratio, first-half 2004

9.5 Points--Deterioration in past year