December 28th, 2009

2009 Top Stories: Reinsurer Financial Updates

Posted at 12:30 AM ET

With 2009 coming to a close, this week we’re taking a look at the most popular stories of the year.

Reinsurer Financial and Cat Losses High, Bermuda Hit Most: A tough year for reinsurers is coming to a close. The worldwide financial catastrophe has impaired investment assets and put downward pressure on profits. At the same time, combined ratios were sent higher by an above-average year for catastrophe losses, especially as a result of Hurricane Ike. So, we enter 2009 with capital constrained, shareholders’ funds diminished, and a combined ratio for the Guy Carpenter Global Composite at its second-highest level in five years.

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Lloyd’s 2008 Results — Resilience in a Tough Market: Lloyd’s of London (”Lloyd’s”) competitive position strengthened in 2008, largely because of effective risk management oversight and relatively conservative investment allocation. The capital structure has proved resilient in the face of the worldwide financial catastrophe and financial strength ratings remain strong and stable. As a result, Lloyd’s is well-positioned to benefit from current market dislocation.

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Europe: A Change of Focus: European reinsurers are focused on two critical issues: residual exposure to risky assets and effective capital deployment. This is a stark change from the past two years, in which the return of capital to shareholders was the dominant priority for many. The excess capital positions of the years following Hurricanes Katrina, Rita, and Wilma have diminished in the face of worldwide market losses, and cedents now have heightened focus on reinsurer counterparty credit risk.

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Global Reinsurance Composite Net Income, Combined Ratio Improve: The Guy Carpenter Global Reinsurance Composite’s net loss narrowed from the first quarter of 2008 to that of 2009. This year, the group showed an aggregate net loss of USD127 million — an improvement of 86 percent. Declines in unrealized losses and better non-life underwriting results are the primary drivers.

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USD6.1bn Loss for Global Reinsurance Composite: With data for 16 of the 20 companies in the Guy Carpenter Global Reinsurance Composite available, an aggregate loss of USD6.1 billion has emerged. This stands in stark contrast to 2007’s aggregate net income of USD18.4 billion. The companies in the Global Reinsurance Composite that have reported their full-year 2008 financial results show a combined return on equity (ROE) of -6.2 percent.

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