European reinsurer results dragged down by investment weakness in 2004: Benfield

Despite strong premium growth, many European reinsurers saw their results dragged by a lackluster investment environment, says a report by reinsurance broker Benfield Group.In the yearend review, “Impairment Drag”, Benfield notes, “The favorable trends in pricing and terms noted through 2003 persisted in the January 2004 renewals, with most companies taking the opportunity to increase writings of lines such as U.S. casualty.”Balance sheets were strength by reserve additions and capital-raising ventures, with European reinsurers raising EUR5.3 billion in new equity capital over the course of 2003. Much of this was by Munich Re, which raised EUR4.3 billion alone. However, the world’s largest reinsurer also highlighted some of the concerns of 2003, posting a net loss for the year on the back of challenges to its life reinsurance operation and tax treatment.Of note, despite net loss yearend results on the part of companies including Munich Re and SCOR, rating agencies have yet to issue downgrades based on 2003 results. “The sector has settled into the mid A to AA range, a level which appears to offer an acceptable balance between credit risk and the ability to generate a fair return on capital.”Underwriting was the industry’s strong suit, with many companies posting combined ratios below 100%, However, the strict underwriting choices of the past two years may not last in the face of soft market indications. “A more benign investment environment underpins an improved profit outlook for 2004, but this is tempered by signs of emerging price competition and the continuing specter of reserve strengthening,” Benfield notes.