Benfield: Re Sector Strong Despite Profit Slump

Despite a 60 percent drop in profits, U.S. reinsurers continue to be strongly rated for financial strength, according to a brokerage group.

The Benfield Quarterly report made that conclusion after a finding that, among reinsurers it studied, reserving deficiencies and hurricane losses drove down 2005 profits by two-thirds to $2.1 billion. The companies examined consisted of the 13 largest U.S. reinsurers.

"Despite the challenges of 2005, the BUSQ group remains strongly rated, and certainly did not suffer the downgrades and negative outlooks seen in the Bermudian peer group covered in the Benfield Bermuda Quarterly," said London-based Benfield analyst and report author Leon Janeke.

Net premiums fell 13 percent last year for the first decline in four years. "While appetites for retentions increased at primary companies, leading to reduced cessions, the BUSQ group retained less business, which suggests a lower risk appetite," Mr. Janeke added.

The financial backing from some of the world's largest reinsurance and insurance groups mitigated what may have been a damaging year from a credit perspective.

For example, Munich Re reinforced the capital of American Re by $1.1 billion last year. Transatlantic raised $745 million during the year and net assets totaled $2.6 billion at year's end, while Odyssey America Re also raised $384 million to its surplus in 2005 in the capital markets.

The top five resinsurers accounted for 56 percent of the gross premium last year, reinforcing the view that size matters, GE Solutions said.

Swiss Re's pending acquisition of GE Insurance Solutions only drove that point home. And the Berkshire stable consisting of Gen Re and National Indemnity Corp. remained influential.

Only three carriers--National Indemnity, XL Re America and Berkeley Insurance Co.--reported combined ratios below 100 last year. The weighted average rose 26 points to 130 in 2005, with outliers American Re at 215 and GE Insurance Solutions at 212.

Gross Premium Written for the group declined 7 percent, which Benfield attributed largely to increasing retention at primary companies.