As a group, reinsurers assuming business in the United States reported a smaller drop in premiums and a better overall combined ratio in 2006 than in 2005, according to National Underwriter's annual analysis of market results.
With an overall combined ratio of 95.7 for 121 companies that qualify as reinsurers under a broad definition that NU used for this analysis (see accompanying explanation), the result is only three points worse than the 92.4 combined ratio posted by the entire property-casualty insurance industry last year.
The overall reinsurer combined ratio, however, benefited from the inclusion of Berkshire Hathaway's National Indemnity, which ranked as the largest reinsurer in 2006 and posted an unusually favorable combined ratio in comparison to other large reinsurers.
Removing the impact of National Indemnity's 63.7 combined ratio from the reinsurer results increases the overall combined ratio for the remaining 120 reinsurers to 101.8.
Similarly, in terms of premium growth, reinsurers did slightly worse than the industry overall, with sizeable growth from National Indemnity helping the comparison.
Reinsurance premiums–premiums assumed from non-affiliated companies–fell 1.3 percent for the 121 reinsurers, while industry aggregate gross premiums for the entire p-c industry increased 1.0 percent.
Excluding National Indemnity, reinsurance premiums slipped further–falling 5.3 percent for the 120 remaining reinsurers in 2006.
Casualty business–representing more than half the reinsurance premiums written in the United States last year–contributed to the overall decline, as casualty reinsurance premiums fell for the third straight year, dipping more than 6 percent in 2006 for the 121 reinsurers analyzed.
In contrast, property reinsurance premiums grew nearly 5 percent for this group in 2006.
Investigating reinsurance premium growth over a longer period–the five years starting in 2001–spotlights trends similar to those revealed in a companion analysis by Gallagher Re, which begins on page 12.
The Gallagher Re analysis presented evidence of a contracting reinsurance market in the United States, reviewing the landscape from the perspective of primary insurers and analyzing premiums ceded to non-affiliated companies.
The NU analysis views statutory filing information from the opposite perspective–that of reinsurers through the analysis of trends in premiums assumed from non-affiliated companies.
This analysis shows an overall increase in these assumed premiums from non-affiliates of 9.6 percent since 2001, with property reinsurance growing nearly 55 percent over the period, while casualty fell more than 11 percent for the 121 reinsurers as a group.
Overall, however, the nearly 10 percent climb translates into an annual average of only 1.8 percent per year. The average is, in fact, generous for the latest years, when U.S. reinsurers posted three straight years of premium drops after a 27.5 percent spike in 2002, followed by a smaller climb (about 8 percent) in 2003.
The top-20 reinsurers sprinted farther, with a five-year jump of 27.6 percent, or roughly 5 percent per year, on average. The five-year jump for these 20 just about matched the single-year jump they recorded in the post-9/11 hard market of 2001, which came in at roughly 30 percent.
New entrants to the U.S. reinsurance market that set up shop in Bermuda in 2001 helped to inflate the five-year premium increases for NU's selected group of 121 companies, and for the top-20 also.
Platinum Underwriters Reinsurance Company, Endurance Reinsurance Corp. of America, Arch Reinsurance Company and Axis Reinsurance Company wrote essentially nothing in 2001 but have since put $2.7 billion of U.S. reinsurance premiums on their books.
Without their results, the overall 9.6 percent jump in assumed reinsurance premiums reverses to a small decline–0.2 percent. It also cuts the five-year jump for the top-20 nearly in half–to about 15 percent–as long-term market participants Munich Re, Employers Re and General Re posted double-digit five-year declines.
Performing a similar analysis for companies that met NU's definition of reinsurer in the earliest year–2001–the impact of market exits becomes clear.
While 101 qualifying reinsurers in 2001 saw their assumed premiums shrink 3.5 percent by year-end 2006, removing the impact of reinsurers that had essentially closed up shop in the United States by 2006 reverses the five-year growth figure to a 4.5 percent jump. The figure rises to 8.7 percent if Converium's North American operations (recently purchased by Berkshire Hathaway) are excluded as well.
In total, exiting reinsurers that ranked among the top-20 in 2001–Gerling Global, PMA and Axa Corp. Solutions–wrote nearly $1.7 billion of assumed premiums in that year, with Converium adding another $1 billion.
The 4.5 percent figure for the remaining 2001 reinsurers represents less than 1 percent growth per year on average.
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