Reinsurers’ Surpluses Rise on Favorable Pricing and Catastrophe Trends

Published on December 2, 2009

The Royal Gazette, a Bermuda based newspaper, reports that reinsurers have posted a second straight quarterly increase in policyholders’ surplus as a result of firmer pricing and the absence of large catastrophes during the 2009 hurricane season:

The combined surplus of 19 reinsurers climbed 12 percent in the three months ended September 30 to $74.1 billion, the Reinsurance Association of America said today in a report. The surplus, a measure of assets minus liabilities, has improved for two quarters after shrinking in the previous six.

“Prices going up helped,” Paul Newsome, an analyst at Sandler O’Neill & Partners LP, said yesterday in an interview. “The level of catastrophe losses being relatively low helps as well.”

The report was published by the Reinsurance Association of America (click on this link for a PDF file) which summarized the results for the nine month period ending September 30, 2009 as follows:

Nineteen property-casualty reinsurers wrote $18.7 billion of net premiums during the nine-months ended September 30, 2009, compared to $19.0 billion for the same period in 2008. The combined ratio for the group was 95.1%, an improvement over the 104.2 % reported for the same period in 2008. Policyholders’ surplus was $74.1 billion, up from $72.1 billion reported for the same period in 2008.

Berkshire Hathaway insurance subsidiaries General Re and National Indemnity posted solid results with below average nine month combined ratios of 93.1% and 81.2% respectively.  The average combined ratio for the reporting group was a less favorable 95.1%, with only six reinsurers showing combined ratios over 100% which indicates underwriting losses.

Despite the favorable results, it is necessary to revisit the analysis of a recent Financial Times article which was discussed here in October.  The article pointed out that even though reinsurers are showing underwriting profitability for the year, this must be viewed in light of the unusually quiet hurricane season.  Furthermore, insurers seeking market share after this favorable year may drive down pricing during the renewal season leading to less favorable underwriting results in 2010 which could be compounded by a return to more typical levels of storm activity.

Disclosure:  The author owns shares of Berkshire Hathaway.

Reinsurers’ Surpluses Rise on Favorable Pricing and Catastrophe Trends
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