Storms hit European reinsurers’ earnings, but not balancesheets: Benfield

The U.S. hurricanes and Japanese typhoons of the third quarter did deal a blow to the earnings of top European insurers, but balance sheets remained strong, according to the latest quarterly report by broker Benfield Group.
In “Riders on the Storm”, Benfield notes that the combined losses of the top reinsurers – Converium, Hannover Re, Munich Re, SCOR, Swiss Re and Alea from the quarters weather catastrophes should read US$2 billion. But given the resiliency of non-catastrophe business, shareholders’ funds increased nonetheless.
Three of the top four European reinsurers who produce quarterly results SCOR, Hannover Re and Munich Re saw shareholders’ equity rise 2-5% between the end of 2003 and September 30, 2004. Troubled Converium saw shareholder equity drop 20% over the same period.
And even considering the storms’ impact, both Munich Re and Hannover Re were able to post combined ratios below 100% for the first nine months of 2004, while SCOR posted a ratio of 102.6%, still a vast improvement over the 123.7% posted for the same period last year. Again Converium bucked the trend, watching its combined ratio rise to 188.2% from 98.1% over the same comparative period.
The persistency of European reinsurers’ generally strong results (with the notable exception of Converium) adds fuel to the speculation that prices will soften in the upcoming renewal season. “Against this backdrop, management assertions that a downturn in prices has been avoided could yet be a pious hope,” the Benfield report notes.
The report also notes the apparent shift in focus from underwriting to regulatory issues by many reinsurers. Swiss Re and Munich Re’s Munich-American Risk Partners have both been subject to scrutiny by New York Attorney General Eliot Spitzer in his probes on finite risk reinsurance and broker compensation, respectively. And the drop in Converium’s share price has subjected that reinsurer to investigation by both U.S. and Swiss securities regulators, as well as shareholder lawsuits filed in the U.S.