European reinsurers sticking to guns thus far in 2004

Early results for 2004 show European reinsurers sticking to their guns on price, with premium income dropping but profits rising. In a new report from Benfield Group, the first-quarter results of Converium, SCOR, Munich Re and Hannover Re (the only European reinsurers who report quarterly), show an average 17% drop in premium income, indicating the race for marketshare is not yet back on.
Converium was the only insurer to increase premium income for the quarter, up 10% over the same period a year ago, although some of this was owed to favorable currency translation as the reinsurer reports in U.S. funds.
Benfield notes that pricing trends remain favorable through April 1 renewals, despite analyst fears of an early return to price competition. “Senior management of the European reinsurers are adamant that they will maintain underwriting discipline as the cycle turns, and are prepared to sacrifice volume for profitability,” the quarterly report notes. “Observers have expressed some skepticism, given past experience. Successful enforcement will be a critical factor for the financial health of the industry.”
At the same time, losses were not a significant factor in the early part of 2004, despite an uptick in large losses but in the absence of major catastrophes. Thus, underwriting performance improved for three of the four players, with SCOR pulling its combined ratio down to 99.0% from 105.2%. Only Hannover Re saw its combined ratio rise, but just by 0.2%.
Investment returns were flat or lower overall for the group, although the report suggests the recovery of stock markets did increase the potential for realized gains. Converium, Munich Re and Hannover Re each saw realized gains grow significantly.
In the final analysis, the group saw its profits rise with Munich Re posting the strongest turnaround from a loss of EUR557 million in the first quarter of 2003 to net income of EUR534 million in 2004. Strong results helped boost shareholders’ funds 4% on an aggregate basis, while each of the four reinsurers saw capitalization strengthened between yearend 2003 and the end of the first quarter of 2004.
Despite these strong results, and a notable lack of rating agency downgrades in the first quarter (only Swiss Re saw its rating lowered), Benfield says the industry is unlikely to return to its former “AAA” rating status. “The industry has become more concentrated around the current average rating of approximately “AA-“.