U.S. reinsurers experience a poor 2004

U.S. reinsurers’ net income for 2004 came in at US$3.14 billion, reflecting a moderate increase on the US$3.08 billion reported by companies the year prior, according to financial data released by the Reinsurance Association of America (RAA). Last year’s modest boost to the bottom-line was fueled by capital gains which more than doubled to US$1.8 billion compared with the $873 million posted for 2003. In contrast, reinsurers saw lower premium and investment income last year combined with a significantly higher underwriting loss.

The U.S. reinsurance sector produced an underwriting loss of US$1.8 billion for 2004, showing significant deterioration from the previous year’s loss of US$560.4 million. This resulted in the sector’s combined ratio for 2004 soaring by five percentage points to 106.2% compared with the 101.2% ratio reported the year before. Reinsurers’ claims costs for last year clocked in at US$22.78 billion (with a loss ratio of 79.8%), reflecting a mild rise on 2003’s losses of US$22.04 billion (loss ratio of 74.0%). The sector’s commission expenses during last year fell to US$5.56 billion versus 2003’s US$6.08 billion, which produced a decrease in the expense ratio to 26.4% compared with the 27.2% ratio posted the year prior.

Reinsurers’ gross written premiums for 2004 dropped to US$43.18 billion (2003: US$47.73 billion), while net earned premiums fell to US$28.56 billion (2003: US$29.80 billion). The sector’s investment income also declined to US$4.76 billion for last year against the US$5.62 billion reported for 2003. Realized capital gains, however, shot up to US$1.80 billion last year (2003: US$873.09 billion). Companies’ policyholders’ surplus stood at US$61.21 billion at the end of 2004, showing a 9.4% year-on-year gain on the previous year’s US$55.92 billion.