U.S. reinsurers producing “mixed results”: Benfield

In its inaugural quarterly analysis of U.S. reinsurers, Benfield Group says first-half 2004 results highlight the wide gulf between the achievers and the under-performers.Based on 13 top reinsurers’ results, Benfield finds underwriting performance and net income. While the average combined ratio produced by the group was an impressive 91.5%, individual results varied from 53.3% for National Indemnity to 109.0% for Swiss Re America. At the same time, two other large U.S. reinsurers General Re and ERC joined Swiss Re in posting a combined ratio in excess of 100%.And while overall net income for the group was up 8% to US$2.8 billion in the first half of 2004, this was largely driven by the performance of National Indemnity, where net income was up 73% to US$1.2 billion.The Benfield study also notes that these results do not take into account the significant storm losses experienced in the third quarter of the year as a result of the Atlantic hurricane season.Overall, U.S. reinsurers have seen capital erode over the past two years on the back of large reserve additions to cover casualty claims for the years 1997-2001. The depletion means reinsurers in the U.S. were less able to take advantage of hard market conditions than their Bermuda counterparts. Benfield notes, while U.S. reinsurers’ policyholder surplus grew just 2% in the first half of 2004, Bermudan reinsurers saw surplus grow 18% over the same period.Legacy issues have caused a shift in corporate activity towards renewal rights acquisitions, rather than outright acquisitions, Benfield notes. In the second quarter of this year, Odyssey Re, W.R. Berkley and Endurance Re Corp. all acquired renewal rights from U.S. competitors.At the same time, in the last four years, 14 of the largest 20 global reinsurers have had their ratings downgraded. “With the number of high grade reinsurers waning, the sector is becoming increasingly concentrated and challenging for some reinsurers with lower grade ratings,” the report notes. “The example of Converium Reinsurance North America (which was placed in run-off earlier this year) has shown how important a strong rating is in order to operate a successful business.”Moving forward, the question remains whether U.S. reinsurers will forgo premium volume to maintain underwriting profitability. While the U.S. hurricanes are likely to slow price softening in the property catastrophe line, other market segments remain in doubt. “The majority of CEOs of reinsurance companies have stressed the need for underwriting discipline. Whether this is simply rhetoric for the benefit of increasingly demanding shareholders, or whether they follow their words with action remains to be seen.”