Reinsurers See Some Relief in 2011 Results Despite Losses

NU Online News Service, April 3, 4:00 p.m. EDT

Despite the heavy claim activity experienced in 2011, reinsurers are breathing a sigh of relief as early results for the year come in, especially in the United States where Berkshire Hathaway buoyed overall results for last year, reports suggest.

In its “1ST View” report on the reinsurance market, Willis Re’s Chairman Peter C. Hearn writes, “Reinsurers are relieved to be enjoying a better start to 2012 than in the previous two years, with much lower levels of loss activity in both theU.S. and International markets.”

The capital base for reinsurers in unchanged from 12 months ago, despite last year’s losses and disappointment on investment returns, he continues.

Moving ahead, he says, “the major challenge for reinsurers is earning acceptable returns” on capital.

To achieve those results, reinsurers are “taking a highly segmented and increasingly disciplined approach to terms and conditions,” says Hearn. However, they are not seeking to apply “blanket rate increases.”

One positive about current conditions is that as rates are increasing, capital continues to be drawn into the global marketplace. Investors are shying away from starting new ventures and instead seek to access selected classes of reinsurance business through “specialist funds.”

In the property market, the report says United States risk-adjusted rate changes stand at more than 7.5 percent as they have at the beginning of the year. Capacity remains available.

The report notes that the attitude of the capital markets, investor cash inflows “remain strong” and catastrophe bond markets are “absorbing large amounts of U.S. hurricane risk.”

Other points the report makes:

  • Retrocession buyers are increasing their interest in catastrophe bonds and catastrophe derivatives.
  • Improving pricing on traditional indemnity contracts starting to attract capacity on collateralized markets.
  • Sidecar market in “on the cusp of increased activity.”

Turning to the U.S.reinsurance market, Charles L. Ruoff, president of CR Market Strategies reviewed last month’s reinsurance underwriting report from the Reinsurance Association of America.

Ruoff says that despite starting off the first quarter of 2011with a combined ratio of 129.3, the 19 U.S. reinsurers round up with a 107.2 for the year.

He says the numbers indicate that Berkshire Hathaway group had a much better year than its peers. The carrier’s results helped to improve the total performance of the group, he suggests.

The group produced net after tax income of $6.6 billion for 2011. However, close to 99 percent of that figure came from the Berkshire Group that reported $5.12 billion.

Berkshire also accounted for close to 71 percent of total investment income for the RAA group and represents almost 73 percent of the total RAA capacity, measured by surplus, producing slightly more than 8 percent return on surplus compared to overall RAA return of just over 6 percent.

Ruoff notes that the direction of the performance of U.S. reinsurers is not necessarily depended on Berkshire. Many of the other leading names on the RAA roles are U.S. subsidiaries of global insurers and their results are largely affected by the premium ceded to “larger mother ship back in Europe, Bermuda or Australia.”

While this fact could lead to a debate over domiciled markets using “their domestic status to acquire and funnel business outside” of the United States to avoid U.S. taxes on initial business, Ruoff suggests the reality is that this entrenched form of doing business will not change any time soon.


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