By DAN REYNOLDS, senior editor of Risk & Insurance®
A performance swing that saw Zurich-based reinsurer Swiss Re fall from $3.55 billion in net income in 2007 to a $739.34 million loss for full-year 2008 has added the Swiss reinsurer to the list of major insurers to suffer ratings downgrades in the past 12 months.
On Feb. 23, Moody's Investors Service downgraded the company's insurance financial strength and its senior debt ratings from Aa3 to A1.
In a press release dated Feb. 19, Stefan Lippe, Swiss Re's CEO, said the company had achieved strong underwriting results in 2008, but like many large financial services institutions, was being buffeted by strangling investment losses.
"The result is clearly disappointing," Lippe said. "Although our Property & Casualty and Life & Health business segments continue to perform extremely well even in these adverse conditions, the result has been impacted by investment losses."
Lippe could have used stronger language than "impacted". The company suffered investment losses of $632.38 million in 2007, but that turned out to be nothing but foreshadowing of the $8.11 billion in investment losses it was hammered with in 2008.
As a result of its investment losses, Swiss Re's overall revenue suffered a 42 percent decline year-over-year. The company registered $36.68 billion in revenue in 2007 and saw that erode to $21.36 billion in revenue in 2008.
But in its year-end earnings report, Swiss Re also provided evidence that it is doing what many companies are doing in this scary economy. Cost cutting at Swiss Re appears to be moving on apace.
The company reported that it cut overall expenses by 30 percent between 2007 and 2008. That included a 17-percent reduction in the cost of acquisitions and a cut in the category labeled "other expenses" of 12 percent, from $3.48 billion to $2.74 billion.
Elsewhere, a Bermuda-based reinsurer absorbed heavy investment losses but still managed to avoid overall negative net income numbers. Bermuda-based IPC Holdings Inc. reported $168.20 million in investment losses in 2008 but managed net income of $90.44 million for the year. Still, that represented a sharp decline from the $385.41 million in net income the Bermuda reinsurer registered in 2007.
But the fourth quarter of 2008 was pretty sunny for IPC. The company reported that $43.70 million, or almost half of its net income for the year came in the fourth quarter.
The company also saw an increase in gross premiums to $40.5 million from $15.2 million. IPC also announced a merger with Max Capital Group Ltd. in early March.
Jim Bryce, IPC's president and CEO, said he was optimistic about 2009. "We have been gratified by renewals and new business opportunities during the January 1 renewal season," Bryce said.
Bermuda-based Montpelier Re wasn't as lucky. The company reported a net loss for 2008 of $145.5 million, which the company said it attributed to $50 million in realized losses and $59 million in unrealized losses. That compares to net income in 2007 of $315.8 million.
The company's fourth quarter loss was $47.7 million, compared to a $90.5 million net profit in the fourth quarter of 2007.
Montpelier Re reported incremental reductions in net written premiums on both a quarterly and annual basis. Montpelier registered $541.2 million in net premiums written in 2008, compared to $549 million in net premiums written in 2007, a decrease of a scant 1.4 percent.
Bermuda-based Flagstone Re also swung to the red. Flagstone registered a $187.30 million net loss in 2008, compared to $167.92 in net income in 2007. The company's fourth quarter results dragged. Flagstone's fourth quarter loss was $75.56 million, compared to $51.36 million in net income in the final quarter of 2007.
April 1, 2009
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