Analyst Sees Lax U.S. Re Underwriting
London Editor
While the World Trade Center disaster contributed to the horrendous losses being reported by the U.S. reinsurance industry for 2001, a good portion of the losses are the result of years of lax underwriting discipline, according to an S&P ratings analyst, who commented on the results released by the Reinsurance Association of America.
The largest U.S. reinsurers made proclamations in the late 1990s that they were undertaking programs of risk selection, said Don Watson, managing director with Standard & Poors in New York.
"But the big companies were not selecting risk; they were accepting risk. They were simply order-takers," emphasized Mr. Watson. "If they were differentiating themselves in underwriting, wed see some significant difference in the results of these companies. At 140 to 170 combined ratios for the biggest U.S. companies, its clear that they were predominantly order-takers in the last half of the decade."
The Washington-based RAA said that a group of 30 property-casualty reinsurers reported a combined ratio of 141.6 during the 12 months ended Dec. 31, 2001, compared with 114.2 reported by 31 reinsurers for 2000.
The combined ratio for 2001 is based on a 111.8 loss ratio and a 29.7 expense ratio, compared with an 83.2 loss ratio and 31.0 expense ratio reported during 2000. Net losses for the 31 RAA reinsurers came to $3.6 billion during 2001, according to the association's statistics.
The World Trade Center catastrophe has contributed significantly to these losses, but its not the whole story, Mr. Watson told National Underwriter. "The lack of underwriting discipline, poor reserving and the legacy issues of asbestos continue to haunt the industry," he said.
The RAA results for a representative sampling of individual companies follow alphabetically. (Only two companies of those selected reported net income, rather than net losses):
American Re-Insurance Company reported a combined ratio of 148.3 for 2001; it reported a net loss of $979.3 million for the year.
Axa Corporate Solutions Reinsurance Company had a combined ratio of 129.8 and a net loss of $87.3 million.
Berkley Insurance Company reported a combined ratio of 148.9 and a net loss of $126.5 million.
Berkshire Hathaway Reinsurance Group reported a combined ratio of 123.8. Figures on net income or losses were not available in the RAA results because the company does not separate out its net loss figures from the larger insurance group to which it belongs.
CNA Re reported the worst combined ratio of the RAA reinsurers at 247.8 in 2001. Its net loss figures were not available in the RAA results.
Converium Reinsurance (North America) Inc., formerly Zurich Reinsurance (North America), had a 170.6 combined ratio and a net loss was $496.8 million.
Employers Reinsurance Group had a combined ratio of 131.4 in 2001 and net income of $1.9 million.
Everest Reinsurance Company reported a combined ratio of 116.3 and net income of $78.9 million.
Folksamerica Reinsurance Company reported a combined ratio of 119.9 and a net loss of $35.3 million.
General Re Group reported a combined ratio of 175.2 and a net loss of $1.2 billion.
Gerling Global Reinsurance reported a combined ratio of 130.8; its net loss was nearly $110 million.
Hartford Re Company reported a combined ratio of 143.9. Figures on whether the company had a net income or loss was not available.
Odyssey America Re Corp. reported a combined ratio of 113.9; the net loss came to $22.4 million.
Partner Re U.S. had a 121.6 combined ratio and a $62.1 million net loss.
PMA Capital Insurance Company had a combined ratio of 118.5; the net loss came to $3.3 million.
PXRE Reinsurance Company reported a combined ratio of 129.4 and a net loss of $28.2 million.
QBE Reinsurance Corp. had a combined ratio of 107.6; the net loss was $3.3 million.
SCOR U.S. Group had a 131.2 combined ratio and a net loss of $241 million.
St. Paul Re had a combined ratio of 143.7. Figures were not available in the RAA release on whether St. Paul had net income or a net loss.
Swiss Reinsurance America Corp. reported a 141.4 combined ratio; the net loss was $79.2 million.
The Toa-Reinsurance Company of America combined ratio was 124.8; its net loss was $17.3 million.
Transatlantic Re/Putnam Re had a combined ratio of 116.0; its net loss was nearly $56 million.
Trenwick Group reported a 113.7 combined ratio and a net loss of $22.9 million.
XL Reinsurance America reported a combined ratio of 161.0; its net loss came to $31.8 million.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, March 25, 2002. Copyright 2002 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.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.