Wrong way: some key factors in the U.S. reinsurance sector's performance moved in the wrong direction in 2004, creating a difficult environment for the industry.Claims from prior years worsened and natural catastrophes escalated in 2004, compounding the misery for a U.S. reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. sector that also saw lower net premiums earned, a continued squeeze Squeeze 1. In financial terms, a period of time when borrowing is difficult. 2. In general business terms, times when increasing costs cannot be passed onto consumers. The decrease in profits is said to be caused by a "squeeze" on profit margins. on net investment yield and a lower return on capital. Nevertheless, the segment's surplus showed solid growth in the face of lower unrealized capital gains, a higher dividend payout ratio Dividend Payout Ratio The percentage of earnings paid to shareholders in dividends. Calculated as: and minimal contributed capital. Return on surplus, or return on equity, including capital gains for the sector, declined 8.1 points to 12.5% in 2004 from 20.6% in 2003, which appears thus far to have been the peak of the most recent property/casualty hard-market cycle. The sector reported an underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. loss of $1.9 billion for all of 2004, compared with an underwriting loss of $276.4 million for 2003. This translated into a calendar-year combined ratio of 106.7, significantly worse than the 100.6 reported in 2003 when the sector benefited from a below-average year for catastrophes, higher earned C premium and more robust pricing. In 2004, however, the sector felt negative impacts from significant natural catastrophes; continuing adverse development from the soft-market cycle years of 1997 to 2001; a step-up step-up A scheduled increase in the exercise or conversion price at which a warrant, an option, or a convertible security may be used to acquire shares of common stock. in asbestos asbestos, mineral asbestos, common name for any of a variety of silicate minerals within the amphibole and serpentine groups that are fibrous in structure and more or less resistant to acid and fire. claims; and a contraction contraction, in physics contraction, in physics: see expansion. contraction, in grammar contraction, in writing: see abbreviation. contraction - reduction in net earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. . The calendar-year combined ratio of 106.7 also was 8.8 points worse than the 97.9 combined ratio reported for the U.S. property/casualty industry. During 2004, the combined ratio deteriorated from 93 in the first quarter, peaking at 121.8 in the third quarter because of the Florida Florida, state, United States Florida (flôr`ĭdə, flŏr`–), state in the extreme SE United States. A long, low peninsula between the Atlantic Ocean (E) and the Gulf of Mexico (W), Florida is bordered by Georgia and storms and finishing the year at 114 in the last quarter as companies further shored up their reserves for prior-year development. While most of the largest broker-market companies-National Indemnity Recompense for loss, damage, or injuries; restitution or reimbursement. An indemnity contract arises when one individual takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual. , Everest Re, Odyssey Odyssey (ŏd`ĭsē): see Homer. Odyssey Homer’s long, narrative poem centered on Odysseus. [Gk. Lit.: Odyssey] See : Epic Odyssey Re and XL America--reported underwriting profits Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums. , the big four direct professional writers--Employers Re, American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of Re, Swiss Re Swiss Re is the world’s largest reinsurer, now that it has acquired GE Insurance Solutions (Ligi 2006). Founded in 1863, Swiss Re now operates in more than 30 countries. General Electric owns 8.9% of the firm. and General Re--once again reported underwriting losses, which drove the underwriting loss for the sector. Converium, Scor, GE Reinsurance, Employers Re, Dorinco and American Re reported combined ratios exceeding 120 in descending descending /des·cend·ing/ (de-send´ing) extending inferiorly. order. In 2003, reinsurers recorded additional deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. for the 1997-2001 accident years. However, in 2004, increased asbestos claims drove prior-year development, partially offset by redundancies in more recent accident years, including 2003. The wisdom of these takedowns may be questioned, but reinsurers are saying it is their short-tail operations that already are proving to be redundant. Prior-year reserve development amounted to 12.9 points on the combined ratio, creeping creeping 1. gradual progression of a lesion or tissue growth. 2. prostrate growth pattern of a plant, e.g. c. buttercup (Ranunculus repens), c. caustic (Euphorbia drummondii), c. charlie (Glechoma hederacea), c. up from 11.7 points in 2003 and producing an accident-year combined ratio of 93.8 for 2004 vs. 88.9 for accident year 2003. The 2004 accident-year combined ratio included an estimated 8.3 points of catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). losses, vs. 3.4 points in 2003. Normalizing the accident year for catastrophe losses in both years, including the Florida hurricanes The List of Florida hurricanes encompasses 470 tropical or subtropical cyclones that affected the state of Florida. More storms hit Florida than any other U.S. state, and since 1851 only eighteen hurricane seasons passed without a storm impacting the state. and Japanese Japanese (jăp'ənēz`), language of uncertain origin that is spoken by more than 125 million people, most of whom live in Japan. There are also many speakers of Japanese in the Ryukyu Islands, Korea, Taiwan, parts of the United States, and typhoons, resulted in a normalized accident-year combined ratio of 85.6 in 2004 and 85.5 in 2003. Contributing to the calendar-year underwriting loss in 2004, despite the generally favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. pricing environment in 2004, was a 2.1% decline in net premium earned, which contrasted sharply with the 13.9% increase reported in 2003 when the sector peaked in harvesting the benefits of the hard-market cycle from its unearned premium reserves. Likewise, net premiums written contracted 3.1% after growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. of 6.2% in 2003 and 21.3% in 2002. A.M. Best's market surveillance indicates that pricing at the Jan. 1, 2005, renewals was flat to slightly down for both property and casualty reinsurance. However, coming off highs in 2002 and 2003, rates in general still are considered adequate. There were exceptions to this rule, especially in the directors and officers class of business, which many reinsurers have exited because of doubts over the adequacy of underlying primary pricing. The Florida storms and a record number of typhoons in Japan in 2004 led to a more cautious and less competitive marketplace than initially expected. Further, the September September: see month. 2004 court decision that the 2001 World Trade Center loss was two separate events, as well as the investigations emanating from the New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of state attorney general's office, no doubt have reminded participants of the lack of certainty regarding legal and regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. bodies and how the outcome of these issues may increase the risks borne by the sector. Gross premiums written When a non-life insurance company closes a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract are called gross premiums written. also declined in 2004 by 4.2% on the heels of a modest but declining increase in 2003 of 5.3%. The top five companies by gross written premiums, in declining order, were Swiss Reinsurance America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. Corp., XL Reinsurance America Inc., American Re-Insurance RE-INSURANCE, mar. contr. An insurance made by a former insurer, his executors, administrators, or assigns, to protect himself and his estate from a risk to which they were liable by the first insurance. 2. It differs from a double insurance (q.v. Co., Transatlantic Reinsurance Co. and Everest Reinsurance Co., while on a net basis, the top three positions were held by Transatlantic, Employers Reinsurance Corp. and National Indemnity Co.--followed by Everest Re and General Reinsurance Corp. in fourth and fifth positions, respectively. With the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. representing the largest reinsurance market in the world, foreign parents have used their U.S. reinsurance platforms to secure the risk and then transferred the risk to larger balance sheets or more favorable regulatory or tax regimes. Net investment income declined 10.7% during the year, driving pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. down 62% to $3.2 billion from the $5.2 billion reported in 2003. Realized capital gains, however, more than doubled to $2 billion, while the tax rate declined to 22.2% in 2004 from 40.4% in 2003, all of which led to a 7% increase in net income to $3.7 billion from $3.5 billion in 2003. Surplus grew 14.3% in 2004, aided by overall earnings as well as the cumulative change in unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. , which came despite a 40% con traction Traction Definition Traction is the use of a pulling force to treat muscle and skeleton disorders. Purpose Traction is usually applied to the arms and legs, the neck, the backbone, or the pelvis. in 2004 from $8.2 billion to $4.9 billion, partially offset by dividends of about $1 billion. A notable change in 2004 was the decline in contributed capital to $143 million from $3.7 billion in 2003, when companies continued to take advantage of the hard market. A.M. Best expects various legislative and regulatory issues in 2005 to prove a distraction Distraction Divination (See OMEN.) Porlock a “person from Porlock” interrupted Coleridge while he was recollecting the dream on which he based “Kubla Khan”. [Br. Lit.: Poems of Coleridge in Magill IV, 756] among many of the top players, forcing them to revisit re·vis·it tr.v. re·vis·it·ed, re·vis·it·ing, re·vis·its To visit again. n. A second or repeated visit. re accounting methods, focus on corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. and question the definition of risk transfer. Further, the step-up in asbestos claims activity; the possible termination of the federal Terrorism Risk Insurance Act The Terrorism Risk Insurance Act (TRIA) is a United States federal law signed into law by President George W. Bush on November 26, 2002. The Act created a federal "backstop" for insurance claims related to acts of terrorism. at the end of this year; and the need to fine-tune catastrophe models for frequency will prove time consuming in 2005. Prior-year adverse development and catastrophic events will continue to have the potential to significantly alter the sector's results.
Top 25 Reinsurers, United States--2004
Rank is based on gross premium written.
($ Thousands)
Gross Direct
Premiums Premiums
Written Written
Rank Company Name (GPW) (DPW)
1 Swiss Reins America Corp $4,733,747 $0
2 XL Reins America Inc 4,382,792 19,988
3 Amer Re-Ins Co 3,903,521 13,597
4 Transatlantic Reins Co 3,780,261 0
5 Everest Reins Co 3,694,479 5,032
6 Employers Reins Corp 3,405,701 343,756
7 Natl Indemnity Co 3,197,742 231,368
8 Gen Reins Corp 2,366,706 69,327
9 Odyssey America Reins 2,136,533 0
10 Berkley Ins Co 1,706,895 460
11 Folksamerica Reins Co 1,484,537 6,194
12 Platinum Underwriters Reins 1,301,664 0
13 Partner Reins Co of the US 1,134,172 0
14 QBE Reins Corp 796,017 2,736
15 Arch Reins CO 782,538 1,877
16 Amer Agricultural Ins CO 734,669 14,402
17 Converium Reins (NA) 573,136 0
18 Axis Reins Co 569,514 233,527
19 GE Reins corp 532,510 57
20 Columbia Ins Co 384,016 18,465
21 Toa Reins Co of America 326,543 0
22 Ins Corp of Hannover 320,208 318,951
23 Dorinco Reins Co 290,787 107,052
24 Centre Ins Co 256,567 36,440
25 Scor Reins Co 199,699 0
Sector Totals $42,994,954 $1,423,229
Net Net
Premiums Premiums
Written Earned
Rank Company Name (NPW) (NPE)
1 Swiss Reins America Corp $2,139,071 $2,082,899
2 XL Reins America Inc 546,020 509,583
3 Amer Re-Ins Co 1,819,269 1,779,479
4 Transatlantic Reins Co 3,223,644 3,139,869
5 Everest Reins Co 2,800,503 2,709,095
6 Employers Reins Corp 3,099,492 3,131,388
7 Natl Indemnity Co 2,808,601 2,702,241
8 Gen Reins Corp 2,262,407 2,465,206
9 Odyssey America Reins 1,986,284 1,953,744
10 Berkley Ins Co 1,599,717 1,570,802
11 Folksamerica Reins Co 993,083 934,188
12 Platinum Underwriters Reins 715,432 658,972
13 Partner Reins Co of the US 877,442 876,171
14 QBE Reins Corp 449,410 433,296
15 Arch Reins CO 76,708 72,047
16 Amer Agricultural Ins CO 484,560 402,560
17 Converium Reins (NA) 348,311 569,810
18 Axis Reins Co 218,600 151,598
19 GE Reins corp 486,192 533,057
20 Columbia Ins Co 383,916 365,646
21 Toa Reins Co of America 282,964 278,170
22 Ins Corp of Hannover 67,931 90,125
23 Dorinco Reins Co 217,149 207,472
24 Centre Ins Co 37,988 49,273
25 Scor Reins Co 127,108 159,192
Sector Totals $28,051,862 $27,805,883
Policyholder
Surplus NPW
Rank Company Name (PHS) Chg *
1 Swiss Reins America Corp $2,647,733 7.6
2 XL Reins America Inc 1,775,407 27.9
3 Amer Re-Ins Co 3,304,678 18
4 Transatlantic Reins Co 1,944,450 9.4
5 Everest Reins Co 2,083,152 -5.5
6 Employers Reins Corp 5,513,121 7.9
7 Natl Indemnity Co 27,224,759 2.5
8 Gen Reins Corp 7,158,986 -27.7
9 Odyssey America Reins 1,675,858 8.1
10 Berkley Ins Co 1,511,628 14.5
11 Folksamerica Reins Co 917,404 11.7
12 Platinum Underwriters Reins 403,121 7.2
13 Partner Reins Co of the US 586,543 -15.6
14 QBE Reins Corp 435,588 15.3
15 Arch Reins CO 479,443 9.6
16 Amer Agricultural Ins CO 331,808 -1.7
17 Converium Reins (NA) 349,255 -54.4
18 Axis Reins Co 517,040 93.3
19 GE Reins corp 689,117 -21.3
20 Columbia Ins Co 7,451,281 68.2
21 Toa Reins Co of America 330,037 1.5
22 Ins Corp of Hannover 179,851 239.3
23 Dorinco Reins Co 415,777 -2.9
24 Centre Ins Co 121,545 -56.6
25 Scor Reins Co 505,761 -62.1
Sector Totals $68,563,433 -3.1
DPW NPE PHS
Rank Company Name Chg * Chg * Chg *
1 Swiss Reins America Corp 0 6.6 5.7
2 XL Reins America Inc 999.9 24.9 8.5
3 Amer Re-Ins Co -85.9 13.8 1
4 Transatlantic Reins Co 9.4 13.1 5
5 Everest Reins Co -60.7 2.2 22
6 Employers Reins Corp -18 12.7 7.7
7 Natl Indemnity Co 6.4 -5 17.9
8 Gen Reins Corp 24.4 -24.6 31.7
9 Odyssey America Reins 0 16.1 7.9
10 Berkley Ins Co -57.8 27.7 28.7
11 Folksamerica Reins Co 5.8 10.7 0.5
12 Platinum Underwriters Reins 0 -5.8 8.1
13 Partner Reins Co of the US 0 -9.4 7.5
14 QBE Reins Corp -36.3 15.1 22.9
15 Arch Reins CO 15.2 20.3 25.2
16 Amer Agricultural Ins CO 10.1 -1.5 5.6
17 Converium Reins (NA) 0 -21.4 -53
18 Axis Reins Co 331.6 227.8 2.8
19 GE Reins corp -7.7 -14.9 3.3
20 Columbia Ins Co 1.6 61.4 20
21 Toa Reins Co of America 0 2.5 7.6
22 Ins Corp of Hannover -16.2 218.2 7
23 Dorinco Reins Co 12.2 -6.4 5.9
24 Centre Ins Co -31.8 -44.6 47.5
25 Scor Reins Co 0 -59.2 18.7
Sector Totals 4.1 -2.1 14.3
Comb
2004 2003 Ratio
Comb Comb Point
Rank Company Name Ratio * Ratio * Chg *
1 Swiss Reins America Corp 116.3 138.5 22.2
2 XL Reins America Inc 89.2 151.3 62.1
3 Amer Re-Ins Co 124.9 108.4 -16.5
4 Transatlantic Reins Co 191.6 96.4 -5.2
5 Everest Reins Co 100.4 97.2 -3.2
6 Employers Reins Corp 131.6 105.1 -26.5
7 Natl Indemnity Co 64.3 52.8 -11.5
8 Gen Reins Corp 111.5 103.6 -7.9
9 Odyssey America Reins 95.2 92.6 -2.6
10 Berkley Ins Co 96.9 92.4 -4.5
11 Folksamerica Reins Co 103.7 96.2 -7.5
12 Platinum Underwriters Reins 97 97.9 0.9
13 Partner Reins Co of the US 108 105.1 -2.9
14 QBE Reins Corp 93.6 100 6.4
15 Arch Reins CO 57.2 41.5 -15.7
16 Amer Agricultural Ins CO 100.8 97.3 -3.5
17 Converium Reins (NA) 174.6 102.4 -72.2
18 Axis Reins Co 104.3 99.2 -5.1
19 GE Reins corp 147.1 133.2 -13.9
20 Columbia Ins Co 45.9 -99.9 -146
21 Toa Reins Co of America 115.1 108.3 -8.8
22 Ins Corp of Hannover 98.1 59.3 -38.8
23 Dorinco Reins Co 128 108.1 -21.9
24 Centre Ins Co 141 134 -7
25 Scor Reins Co 156.8 159.2 2.4
Sector Totals 106.7 100.6 -6.1
* Total percentage changes and ratios represent the reinsurance
industry aggregate, not the 25-company composite.
Source: A.M. Best Co.
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