Shareholders’ funds for 16 of the 20 companies in the Guy Carpenter Global Reinsurance Composite are down 18 percent from year-end 2007 to year-end 2008. The change, which reflects an aggregate drop of USD19.7 billion — from USD108.4 billion in 2007 to USD88.7 billion in 2008 — is consistent with Guy Carpenter expectations since the beginning of the fourth quarter of 2008 (when we estimated a 15 percent to 17 percent decline in shareholders’ funds).
(Chart after the jump)
The aggregate 18 percent decline in shareholders’ funds is based on a wide variety of specific company experiences. Two reinsurers (Harbor Point and Odyssey Re) reported shareholders’ funds increases of 7 percent year-over-year. At the other end of the spectrum, Swiss Re sustained a 36 percent decline. Unrealized losses on investments accounted for 53 percent of the total USD19.7 billion drop for the Global Reinsurance Composite - with share repurchases at 28 percent and dividends paid at 22 percent. Most share repurchase programs were suspended during the second half of 2008 because capital was depleted.
Despite catastrophe losses and reduced investment income, these 16 companies were able to return an aggregate profit for 2008, excluding the unrealized losses on investments.
The Global Reinsurance Composite consists of 20 reinsurers (none of them Lloyd’s vehicles). So far, 16 have reported their year-end 2008 financial results with sufficient detail for our shareholders’ funds analysis. We will update this chart as more data becomes available. Directional changes are unlikely.
Note: This study uses accounting capital as reported in companies’ reports and accounts. The exclusion of intangible items, such as goodwill, could result in a greater decrease in economic capital.