Having endured $50 billion in catastrophic losses in 2011, among the most expensive ever for global reinsurers, the sector has demonstrated ‘financial resilience,’ according to “Reinsurers Show Resilience Under Weight of Catastrophes, Economic Woes,” a report from A.M. Best.
Reinsurers mostly produced underwriting losses last year and earnings and capital were flat. However, investment income and capital gains, attributable to declining interest rates against fixed income portfolios, helped stabilize capital positions and were largely responsible for the sector’s modest profits.
For 2012, A.M. Best believes reinsurers will experience low double-digit returns on equity in 2012, and support organic growth, assuming normal levels of catastrophic losses.
Though at lower levels, share repurchases continued through 2011 and likely will continue due to low share-price-to-book valuations.
In terms of capitalization, European reinsurers stood up better than those based in Bermuda, and underwriting was very similar between the two. Most global reinsurers have reduced exposure to the ongoing sovereign debt problems in the Euro Zone and have determined through stress tests that underwriting and investment risks are manageable in terms of adequate capitalization.
From a loss-reserve perspective, the reinsurance sector had benefited from the hard market of 2002 to 2006 and that trend continued in 2011, as combined ratios improved by an average of 6 points. For example, Swiss Re reported a combined ratio of 101.6 for the year, compared with the composite average of 107.3, which allowed the company to benefit from the release of $1.7 billion last year.
“Expectation is building that this degree of favorable reserve development will not hold up,” the report said. “Without this benefit, pressure will increase on underwriting margins to generate earnings as long as investment yields remain lackluster.”
Pricing improvements have dwindled over the course of 2012 after favorable renewals earlier in the year. Pricing for June 1 and July 1 renewals were flat-to-up by 5 percent on average, compared to the 8- to-10-percent increases seen on January 1 and April 1 renewals.
Reinsurers backed by hedge funds represent a new trend in the sector, although none yet rank in the top 50.
Underwriting profitability is increasingly important, the report said, as investment yield continue to be very low.
A.M. Best ranks reinsurers based on gross premiums written related to unaffiliated assumed business, and the ranking is as of the end of the 2011 fiscal year (U.S. millions):
1. Munich Reinsurance Company—$33,719
2. Swiss Reinsurance Company Limited—$28,664
3. Hannover Rueckversicherung AG—$15,664
4. Berkshire Hathaway Inc.—$15,000
6. SCOR S.E.—$9,845
7. Reinsurance Group of America Inc.—$7,704
8. China Reinsurance (Group) Corporation—$6,179
9. PartnerRe Ltd.—$4,621
10. Korean Reinsurance Company—$4,551
11. Everest Re Group Ltd.—$4,286
12. Transatlantic Holdings, Inc.—$4,035
13. MAPFRE RE, Compania de Reaseguros, S.A.—$3,407
14. London Reinsurance Group Inc.—$3,117
15. Assicurazioni Generali SpA—$2,674
16. General Insurance Corporation of India—$2,627
17. XL Group plc—$2,468
18. QBE Insurance Group Limited—$2,263
19. The Toa Reinsurance Company, Limited—$2,226
20. Axis Capital Holdings Limited—$1,974
21. R+V Versicherung AG—$1,933
22. MS&AD Insurance Group Holdings, Inc.—$1,784
23. Odyssey Re Holdings Corp.—$1,760
24. Caisse Centrale de Reassurance—$1,733
25. Catlin Group Limited—$1,679
26. Tokio Marine Holdings, Inc.—$1,565
27. RenaissanceRe Holdings Ltd.—$1,435
28. Amlin plc—$1,389
29. IRB - Brasil Resseguros S.A.—$1,261
30. Validus Holdings, Ltd.—$1,190
31. Aspen Insurance Holdings Limited—$1,188
32. White Mountains Insurance Group, Ltd.—$1,128
33. American Agricultural Insurance Company—$1,060
34. ACE Limited—$1,014
35. Arch Capital Group Ltd.—$999
36. Endurance Specialty Holdings, Ltd.—$997
37. Maiden Holdings, Ltd.—$887
38. Deutsche Rueckversicherung AG—$885
39. Alterra Capital Holdings Ltd.—$870
40. Allianz SE—$837
41. Flagstone Reinsurance Holdings Limited—$790
42. ACR Capital Holdings Pte, Ltd.—$752
43. Montpelier Re Holdings Ltd.—$726
44. Platinum Underwriters Holdings Ltd.—$687
45. Pacific LifeCorp—$641
46. Ariel Holdings, Ltd.—$583
47. NKSJ Holdings, Inc.—$575
48. Allied World Assurance Company Holdings, AG—$571
49. Central Reinsurance Corporation—$458
50. W.R. Berkley Corporation—$453
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