American Re Reports Record 2003 Earnings
NU Online News Service, March 8, 3:10 p.m. EST?American Re Corp. said its investment income and strong underwriting performance created record 2003 earnings despite a $368 million reserve charge.[@@]
A.M. Best Co. reacted by affirming its ratings for the Princeton, N.J.-based subsidiary of reinsurer Munich Re.
Operating performance last year for American Re included pre-tax income of $503.1 million for the full year, in contrast to an operating loss of $1.9 billion during 2002, when the reinsurer took a $2 billion reserve charge for the prior accident development, said American Re spokesman Craig Howie.
Included in the 2003 pre-tax income is an additional reserve charge of $368 million, pre-tax, for losses from the 1997-2001 accident years, resulting in a combined ratio of 102.6 for last year. But the accident-year combined ratio came in at 94.5 for its core business units, compared with 101.6 in 2002.
"Our core business units performed at a very decent rate last year," Mr. Howie told National Underwriter. "We also had tremendous investment income, primarily because of the way the markets were working last year."
American Re also noted that despite the new charge of $368 million, the statutory surplus for the company's units increased by more than $1 billion to $3.34 billion in 2003.
Commenting on the company's 2003 results, Chairman John Phelan said the reinsurer is pleased that it performed according to the plan in 2003. "The company's balance sheet is stronger than ever. Provision for prior-year losses has been significantly strengthened. American Re continues to offer its clients top security in addition to unparalleled expertise and genuine value-added services," Mr. Phelan said.
A.M. Best said its "A-plus" (Superior) financial strength rating for main subsidiaries of American Re, as well as its "A-minus" senior debt rating, remains unchanged. The firm said its ratings had already contemplated a sizeable reserve deficiency?therefore, American Re's stand-alone capitalization remains supportive of its current superior financial strength rating.
A.M. Best also observed that despite the new charge, American Re boosted its statutory surplus to $3.34 billion for last year?helped by robust earnings, a capital contribution of $300 million from its parent company and unrealized capital gains.
The rating company also said American Re has benefited from improved conditions in the U.S. professional reinsurance marketplace. "Current accident-year trends are very favorable thus far and are in line with the U.S. reinsurance sector," according to the ratings agency. The firm also said that American Re, as a strategically important subsidiary, will continue to benefit from the ongoing commitment of its parent, Munich Re.
Further details of American Re's 2003 results will become available during Munich Re's publication of provisional figures for its 2003 financial statements on March 17.
American Re is one of the top providers of p-c reinsurance in the country. It offers treaty insurance and facultative reinsurance to both large and small primary insurers. It also provides risk management for self-insureds, insurance brokerage for large corporations, and consulting services for insurance company mergers and acquisitions.
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