U.S. Reinsurers Report Better Underwriting Results, NetIncome

Net premiums written down; more disciplined underwritingcited

U.S. property-casualty reinsurers improved their combined ratioand net underwriting gains as well as their overall net income in2004's first quarter?even as net premiums written fell whencompared to a similar group of companies surveyed one year ago,according to a report by the Reinsurance Association ofAmerica.

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

An RAA representative said improved underwriting income and abetter combined ratio combined with scaled-back net premiumswritten can largely be attributed to the higher underwritingstandards on the part of reinsurers. Other factors behind thefalling premiums written are greater retention by ceding companiesand withdrawals of several big reinsurance companies over the pastyear, the Washington-based group said.

The RAA report, which represents the compiled statutory resultsof 28 U.S. reinsurers, showed a combined ratio of 94 for the firstquarter?down 2.4 points from the 96.4 mark reported by a similargroup of companies in the same period the year before. The improvedcombined ratio during this year's first three months reflects a67.6 loss ratio and a 26.4 expense ratio.

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

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

“Investment income was down for the quarter?that's certainly afactor for why reinsurers are focusing on underwriting profit andmaking money on the underwriting side,” commented JosephSieverling, senior vice president at the RAA. He added that theconcern over lower investment income has helped maintain thedisciplined pricing environment that is still relatively healthyfor 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 billionreported by a comparable group of reinsurers at the same time lastyear. (Looking at individual companies, the bulk of the reinsurerssurveyed showed improved net income, as well. Among the 23reinsurers surveyed for both 2004 as well as 2003's first quarter,16 posted higher net income, while only seven reporteddeteriorating net results.)

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

“What a lot of people focus on from these reports is thecombined ratio, and that has improved on an industry-wide basisfrom 96.4 to 94. So again, the reinsurance sector is showingunderwriting profit,” noted Mr. Sieverling, who pointed to thelowering of reinsurers' loss ratios in particular. “Losses incurredhave gone down. The loss ratio for last year's first quarter was71.3; this year, it's 67.6. So it's substantially decreased,” hesaid. “The expense ratio hasn?t changed much?it?s actuallyincreased a little bit. But the primary factor for improvedcombined ratio is better loss experience.”

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

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

He added that the sector has seen several players exit thereinsurance stage in the past year, contributing to the lowerpremiums written. “Some are withdrawing and some are selling offtheir 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, havedecided to exit the reinsurance industry,” Mr. Sieverlingcommented.

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