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Combined ratio deteriorates 2.6 points for Willis Reinsurance Index


September 7, 2016   by Canadian Underwriter


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Willis Towers Watson plc reported Monday the combined ratio for its index of top reinsurers was 94.1% during the first six months of 2016, up 2.6 points from 91.5% during the same period as 2015, during a time when insurers were hit by losses from catastrophes such as the Fort McMurray wildfire, floods in Europe and an explosion at a vinyl chloride plant in Mexico.

The Willis Re Reinsurance Market Report covers the financial performance of the Willis Reinsurance Index group of companies.

London-based Willis Towers Watson was formed in 2015 with merger of commercial insurance brokerage Willis Group Holdings plc and consulting firm Towers Watson & Co.

The Willis Reinsurance Index includes Swiss Re, Munich Re, Hannover Re, SCOR, Berkshire Hathaway reinsurance group and Toronto-based Fairfax Financial (whose holdings include OdysseyRe), among others.

For the index, the year-over-year increase in the combined ratio for the first six months of the year was “primarily as a result of higher natural catastrophe losses in addition to a slight reduction in reserve releases which exists despite increased and sizeable reserve releases by the large German reinsurers” Willis reported. “A number of reinsurers continued to report some pockets of adverse reserve development including for U.S. asbestos and certain other casualty lines of business.”

The net written premium for all companies in the index was $117.1 billion during the first six months of this year, up 2.2% from $115 billion during the first six months of 2015. All figures are in U.S. dollars.

Willis Towers Watson also reports aggregate figures from a subset of its index. That subset is those firms in the index who make “relevant disclosure in relation to cat losses and prior year reserve releases.” All constituents of the subset are publicly traded and comprise 58% of the aggregate capital of the index.

For the subset, the combined ratio was 93.7% in the first six months of 2016, up 3.7 points from 90.5% in the first six months of 2015.

For the subset, excluding natural catastrophe losses and prior year reserve releases, the ex cat accident year combined ratio would have been 94.3% in the first six months of 2016, up 0.1 points from 94.2% in the first half of last year.

When comparing 2016 to 2015, Willis Towers Watson made a US$7.8 billion adjustment to eliminate the capital of White Mountains Insurance Group Ltd. and HCC Insurance Holdings Inc., the parent company of Houston Casualty Company.

White Mountains completed in 2015 the sale of Sirius International Insurance Group Ltd., to CM International Holding Pte. Ltd. of Singapore. Also in 2015, Tokio Marine Holdings Inc. acquired Houston-based HCC.

For the subset of the index, Willis Towers Watson reported  the cat loss component of the combined ratio was 4.6 points in the first six months of 2016, up from 1.3 points during the same period in 2015.

Quoting from a previous Swiss Re report, Willis Towers Watson noted that global insured catastrophe losses were $31 billion in the first six months of 2016, up 47% from $21 billion in the same period in 2015. Natural catastrophe losses were $28 billion in the first half of  2016, up 75% from $16 billion during the first half of 2015.

The costliest events in the first half of this year included the Fort McMurray, Alberta wildfire, the earthquake in Kumamoto, Japan and flooding in Belgium France and Germany.

Man-made losses included the Pemex petrochemical plant explosion in Mexico April 20.

The Associated Press reported at the time that 13 were killed as a result of the explosion in Coatzacoalcos. AP reported that the plant produces vinyl chloride, which is used to make PVC pipes and for other purposes. AP quoted Mexico’s state owned oil company, Petroleos Mexicanos, as saying the plant is operated by another company, Mexichem, in partnership with Pemex.

Another man-made loss referred to in the Willis Re Reinsurance Market Report was an aviation incident in August when Emirates Flight EK52, a Boeing 777-300, crash landed at the Dubai International Airport. One firefighter died but all passengers and crew escaped. Quoting published reports, Willis Towers Watson reported the estimated loss from that Emirates incident was $96 million while the loss from the Pemex plant incident was estimated at $386 million.

In a story published Sept. 6, AP quoted a preliminary report from the United Arab Emirates’ General Civil Aviation Authority as saying that as Emirates EK52 got near the ground, a headwind started to shift to a tailwind and back again, and that the crew attempted to pull up and go around.