U.S. Reinsurers Report Better Underwriting Results, Net Income

Net premiums written down; more disciplined underwriting cited

U.S. property-casualty reinsurers improved their combined ratio and net underwriting gains as well as their overall net income in 2004's first quarter?even as net premiums written fell when compared to a similar group of companies surveyed one year ago, according to a report by the Reinsurance Association of America.

Overall, the reinsurers still made the lion's share of their overall income this past quarter from their investment profit, which fell a little bit compared to one year ago, but still managed to reach the $1 billion mark industry-wide.

An RAA representative said improved underwriting income and a better combined ratio combined with scaled-back net premiums written can largely be attributed to the higher underwriting standards on the part of reinsurers. Other factors behind the falling premiums written are greater retention by ceding companies and withdrawals of several big reinsurance companies over the past year, the Washington-based group said.

The RAA report, which represents the compiled statutory results of 28 U.S. reinsurers, showed a combined ratio of 94 for the first quarter?down 2.4 points from the 96.4 mark reported by a similar group of companies in the same period the year before. The improved combined ratio during this year's first three months reflects a 67.6 loss ratio and a 26.4 expense ratio.

Individually, of the 23 reinsurers surveyed for the first quarter of both years, 13 showed improved combined ratios, while 10 saw the ratio rise. Some of the larger companies didn't meet industry benchmarks. Munich Re's unit American Re, Berkshire Hathaway's General Re, Swiss Re and Employers Re all saw their underwriting results fall below the industry average, with only General Re managing a narrow underwriting profit with a 99.7 combined ratio.

The reinsurers' overall net underwriting gain for this year's first quarter was $188.25 million?much higher than the $8.89 million reported one year ago. The reinsurers, however, saw receding investment income, posting $1.08 billion for the first quarter?still a significant amount but nonetheless smaller than the $1.20 billion a similar group of companies reported the year before.

“Investment income was down for the quarter?that's certainly a factor for why reinsurers are focusing on underwriting profit and making money on the underwriting side,” commented Joseph Sieverling, senior vice president at the RAA. He added that the concern over lower investment income has helped maintain the disciplined pricing environment that is still relatively healthy for sellers of many reinsurance lines.

In all, U.S. reinsurers had higher total net income, posting $1.42 billion for the 2004 first quarter, up from $1.23 billion reported by a comparable group of reinsurers at the same time last year. (Looking at individual companies, the bulk of the reinsurers surveyed showed improved net income, as well. Among the 23 reinsurers surveyed for both 2004 as well as 2003's first quarter, 16 posted higher net income, while only seven reported deteriorating net results.)

However, the reinsurers showed a drop in overall net premiums written, posting $7.82 billion for the first quarter?down 8.3 percent from the $8.53 billion reported by a comparable list of U.S. reinsurers during the year-earlier period.

“What a lot of people focus on from these reports is the combined ratio, and that has improved on an industry-wide basis from 96.4 to 94. So again, the reinsurance sector is showing underwriting profit,” noted Mr. Sieverling, who pointed to the lowering of reinsurers' loss ratios in particular. “Losses incurred have gone down. The loss ratio for last year's first quarter was 71.3; this year, it's 67.6. So it's substantially decreased,” he said. “The expense ratio hasn?t changed much?it?s actually increased a little bit. But the primary factor for improved combined ratio is better loss experience.”

“Clearly the reinsurance industry is focusing on making an underwriting profit,” he added.

Commenting further on the lower premiums written during this year's first quarter, Mr. Sieverling said that many reinsurers are now underwriting less business “because they are sticking to the underwriting standards that they need to have to make an underwriting profit.” He added that the results “probably reflect a trend on the part of the primary companies to retain more business at this stage of the market cycle.”

He added that the sector has seen several players exit the reinsurance stage in the past year, contributing to the lower premiums written. “Some are withdrawing and some are selling off their business,” he said. For example, Axa Corporate Solutions Re, CNA Re, PMA Re and Hartford Re are no longer writing reinsurance, while Gerling Global Re and Trenwick Re are in runoff.

“There are a number of companies that, for whatever reason, have decided to exit the reinsurance industry,” Mr. Sieverling commented.

Reproduced from National Underwriter Edition, June 4, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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U.S. Reinsurers Report Better Underwriting Results, Net Income

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