RAA Results Show Reinsurers Still Hurting

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By Lisa S. Howard

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Reinsurance Editor

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The sins of the past continue to diminish the rewards of thecurrent hard market for U.S. reinsurers, which reported a combinedratio of 121.3 during the 12 months ended Dec. 31, 2002, comparedwith a combined ratio of 141.6 in 2001.

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In its quarterly survey of 30 reinsurers statutory underwritingresults, the Reinsurance Association of America said the loss ratioportion of the 2002 combined ratio was 93.7, while the expenseratio was 27.6. The ratios compare with a loss ratio of 111.8 and a29.7 expense ratio reported in 2001 for a similar group ofreinsurers.

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During 2002, the group of U.S. reinsurers wrote $29.5 billion ofnet premiums compared to $26.5 billion for 2001, according to theassociations statistics.

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While hardening rates and tighter terms and conditions arestarting to improve accident year results, Laline Carvalho, adirector for Standard & Poors, said more work needs to be done.“The companies are not anywhere close to where they need to be toachieve decent returns-on-equity for their investors.”

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As a result, she thought more double- digit rate increases wereneeded in 2003 and 2004, as well as further tightening in terms andconditions. “The question remains as to whats going to happen tothe market after that. Youve got a very short window of time tomake up for all the sins of the past.”

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Further, theres probably more bad news to come in the reservingarea, which will offset some of the good news on pricing and betterterms and conditions, she said.

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Although companies have done a lot of reserve strengthening in2002, the question is whether they have fully accounted for thelosses that are flowing through the primary markets, “which willeventually hit reinsurers,” Ms. Carvalho said. She noted that manyprimary companies have boosted reserves for asbestos and otherlosses incurred during the height of the soft market, between 1997and 2001.

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“The primary companies, particularly in the area of asbestos,seem to be throwing up their hands and saying, Were going tofinally admit to a substantial amount of loss” in order to put theproblem behind them, said Steven Dreyer, insurance practice leaderat S&P in New York. Not long ago, he said, these companieswould have denied liability for these asbestos claims.

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“The challenges of the mid-to-late 1990s underwriting yearscontinued, in 2002, to affect the industry,” acknowledged DeanDavison, a representative for Employers Reinsurance Corp., whichlast year put up $3.4 billion in reserves on a pre-tax basis.

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“As we saw the new data from claims, we took necessary actionsto boost our reserves. So thats reflected in our poor financialresults for 2002,” he said. “The 2002 accident year appears to becoming in solid, as the actions to improve underwriting of the lastcouple of years start to take hold. But it hasnt been enough yet toovercome the challenges of the past.”

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However, he said the company is looking forward to improvingresults in 2003. “Weve had continued progress in our underwriting.Weve had significant improvements in pricing, terms and conditionsover the last two years.”

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The RAA results for a representative sampling of individualcompanies follow alphabetically:

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American Re-Insurance Co. reported a combined ratio of 291.5 andnet premiums of $1.2 billion for 2002. The companys 2001 combinedratio was 148.3.
Axa Corporation Solutions Reinsurance Co. reported a combined ratioof 102.1 in 2002, 129.8 in 2001.
Berkley Insurance Co. reported a combined ratio of 100.3 in 2002,148.9 in 2001.
CNA Re had a combined ratio of 107.9 in 2002 and 247.8 in2001.
Converium Reinsurance (North America) had a combined ratio of 112.6in 2002 and 170.6 in 2001;
Employers Reinsurance Corp., with net written premiums of $4.5billion in 2002, had a 2002 combined ratio of 163.8 and a 2001combined ratio of 131.4.
Everest Reinsurance Co. had a combined ratio of 98.8 in 2002; 116.3in 2001.
Folksamerica Reinsurance Co. had a combined ratio of 99.2 in 2002;119.9 in 2001.
General Re Group, with net written premiums of close to $4.0billion, had a combined ratio of 125.6 in 2002 and 175.2 in2001.
Gerling Global Reinsurance Corp. of Americawhich has been put intorun-offhad a 149.7 combined ratio in 2002, compared to 130.8 in2001;
Hartford Re had a combined ratio of 107.1 in 2002 and 143.9 in2001.
National Indemnity, with net premiums totaling $2.7 billion, had acombined ratio of 54.0 in 2002. (National Indemnitys figures wereincluded in Berkshire Hathaway Group reporting in 2001. BerkshireHathaway had a combined ratio of 123.8.)
Odyssey America Re Corp./Odyssey Re Corp. had a combined ratio of98.3 in 2002 and 113.9 in 2001.
Overseas Partners U.S. Reinsurance Co. had a combined ratio of112.6 in 2002 and 120.6 in 2001.
PartnerRe U.S. had a combined ratio of 105.3 in 2002 and 121.6 in2001.
Platinum Underwriters Reinsuranceformed as a result of a spin-offfrom The St. Paul Companieshad a combined ratio of 84.6. (Thecompany started writing business in the fourth quarter of2002.)
PMA Capital had a combined ratio of 108.3 in 2002 and 118.5 in2001.
PXRE Reinsurance Co. had a combined ratio of 81.2 in 2002; 129.4 in2001.
QBE Reinsurance Corp. had a combined ratio of 97.5 in 2002; 107.6in 2001.
SCOR U.S. Group/SCOR Reinsurance Co. had a combined ratio of 111.4in 2002, compared to 131.2 in 2001.
Swiss Reinsurance America Corp. had a combined ratio of 113.3 in2002; 141.4 in 2001;
Toa Reinsurance Company of America had a combined ratio of 102.6 in2002; 124.8 in 2001.
Transatlantic/Putnam Reinsurance Co. had a combined ratio of 102.1in 2002; 116.0 in 2001.
Trenwick America Reinsurance Corp. had a combined ratio of 134.7 in2002; 113.7 in 2001.
XL Reinsurance America had a combined ratio of 112.0 in 2002; 161.0in 2001.


Reproduced from National Underwriter Edition, March 24, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.


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