Alea Exits Canadian Reinsurance Marketplace

The Canadian operation of Alea Europe Ltd. will discontinue writing new business from the beginning of August this year, a statement released by the parent company says. Gilles Meyer, CEO of Alea Europe, says the decision to withdraw from the Canadian reinsurance marketplace relates to the company’s diminishing premium volume and inadequate profitability. As such, the reinsurer feels that its capital can be better leveraged in other global markets.

Pat King, chief agent for Alea in Canada, confirms that it was an economic decision for the company in exiting the Canadian marketplace. “It’s a global company, it’s a global market. The rates of return in other countries are better than here in Canada. Canada’s extremely competitive reinsurance market, with its high number of players, meant that the company could not attain the volume that it sought.”

Alea wrote just under $4 million in net written premiums for the 2002 financial year with an underwriting loss of $7.4 million which saw the company’s combined ratio rocket to 204%. The reinsurer began cutting back on unprofitable business in 2001, says King, which resulted in net written premium volume plummeting to $12.5 million for that financial year from 2000’s $40 million. “We could have written more business [in 2001 and 2002], but we couldn’t accept the market [underwriting] conditions,” observes King. In order to be competitive in the Canadian marketplace, a reinsurer needs to write about $30 million in gross premium to be cost effective, he adds, and Alea was unable to achieve that target on profitable business. King also notes that, when a company dramatically reduces its top-line and effectively begins running its business off, comparing loss performance on calendar financial years can be highly misleading.

Although Alea will officially end writing new business from August, King says none of the company’s covers expiring in July have been renewed. About 80% of Alea’s Canadian treaties expire at the end of the year, he points out. King says all outstanding business will go into runoff, which will likely take several years to clear out the claims portfolio. The company is currently looking at what would be the most effective means of handling the runoff process, he adds, with the objective of maintaining the same high service level for brokers and clients alike. At this stage, King says the only decision made is that the runoff process will be handled from Canada with at least one senior staff member retained for this function. Alea’s Canadian operation had been staffed by five employees.