A.M. Best Special Report: Reinsurers Show Resilience Under Weight of Catastrophes, Economic Woes

OLDWICK, N.J.--(BUSINESS WIRE)--The top 50 global reinsurers’ financial position coming out of 2011 illustrates the sector’s financial resilience through one of the costliest catastrophe years in history, according to a new report by A.M. Best Co. While the sector and most players within it produced an underwriting loss for the year, overall earnings were generally breakeven, and capital came through the year relatively flat. Underwriting losses were offset by a combination of net investment income and a modest level of realized capital gains to produce a small overall profit for the year. Unrealized capital gains attributed to declining interest rates against fixed income portfolios also helped to stabilize the composite’s capital position, as did some minor capital-raising activity. Capital management strategies in the form of share repurchases continued, but to a much lesser degree compared with prior years. However, given the low share price to book valuations, many reinsurance companies continue to see share repurchases as very attractive.

Dissecting the performance between the European reinsurers and those operating in Bermuda and the United States draws some distinct parallels and differences. Overall, the European reinsurers’ capitalization seemed to hold up better as compared with Bermuda. Underwriting performance across both segments was eerily consistent.

At first this would appear unlikely, given that two-thirds of 2011 catastrophe losses occurred outside the United States. While the European reinsurers do have better penetration in Asia, they also benefit from a significantly larger capital base and greater diversification in business classes globally. In particular, the European reinsurers have significant life operations, which serve as ballast for their income stream and capital base.

Bermuda, while accepting a broad spectrum of risks, is still predominantly a property catastrophe market and therefore more vulnerable to catastrophe shock losses, regardless of where they occur. So while underwriting performance for both the European and Bermuda segments was comparable, the impact on capital by company indicates that Bermuda-based companies absorbed a larger relative share of shock losses in 2011 than did the Europeans.

To access the full report, which includes a ranking of the top 50 global reinsurers, please visit http://www.ambest.com/press/globalre.html.

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