June 3rd, 2010

Global Reinsurance Composite Net Income Declines, Investment Income Recovers in 1 Q, 2010

Posted at 1:00 AM ET

Chris Klein, Global Head of Business Intelligence
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The Guy Carpenter Global Reinsurance Composite’s net income declined in the first quarter of 2010 compared with the same quarter in 2009. The companies comprising the group showed an aggregate net gain of USD1.4 billion, a decline of 31 percent from the first quarter of 2009. The primary driver was an increase in non-life underwriting losses.

The Composite’s non-life underwriting result suffered a loss of USD1.5 billion. This loss contrasts with the corresponding quarter in 2009, which showed a non-life underwriting gain of USD1.1 billion. The first quarter of 2010 was dominated by natural catastrophe events including the Chile earthquake, U.S. winter storms, Windstorm Xynthia in Europe and hail in and around Melbourne, Australia. Catastrophe losses from events in excess of USD250 million totaled approximately USD17 billion in the first quarter of 2010 compared with USD7 billion in the first quarter of 2009.

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The large number of major losses that occurred in the first quarter impacted the composite’s loss ratio, increasing it to 79.9 percent from 65.3 percent in the first quarter of 2009 and 62.7 percent for the full year 2009.

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The impact of the first quarter 2010 loss events was mitigated by an investment income increase of 28.6 percent from the first quarter of 2009. Realized gains increased substantially to USD1.3 billion from gains of USD7 million in the first quarter of 2009. An unrealized loss of USD2.6 billion in the first quarter of 2009 reversed to an unrealized gain of USD1.5 billion in the first quarter of 2010.

Aggregate shareholders’ funds for the composite declined in the first quarter of 2010 by 0.4 percent to USD109.5 billion from a 2010 year-end figure of USD110 billion. The slight decline occurred as reduced net income accompanied the members’ dividend payments and share buybacks. The latter were instigated in response to the newly replenished balance sheets, as the investment environment improved.

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Looking ahead at the performance of the global composite in the second quarter of 2010, it is likely that earnings will take a hit as a steady stream of loss events bear down. The Deepwater Horizon rig explosion and oil spill, several aviation losses, and early signs of potential heightened hurricane activity in Florida may all play a role. Also, optimism about an improved long-term investment outlook may be reversed as we see renewed instability in global stock markets.

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