By CYRIL TUOHY, managing editor of Risk & Insurance®
The world's two biggest reinsurance companies reported a lower 2010 fourth-quarter profit and a loss, respectively, due to claims payouts in connection with the Deepwater Horizon oil spill, the earthquake in Chile and flooding in Australia.
Munich Re, the world's largest reinsurer, reported fourth-quarter profits of $663 million, down 38.5 percent from the year-earlier period. For the full year, the Munich-based reinsurer posed a profit of $3.25 billion, down from $3.42 billion in 2009, the company said.
Chief Financial Officer Jorg Schneider said that "weighty major losses" had affected the Munich-based giant's fourth-quarter and year-end results.
"Our reinsurance unit saw significant claims," he said in a conference call.
Despite Australian flooding, which is expected to cost the company more than $360 million in the fourth quarter, Munich Re reported its plans to raise its dividend and to continue its share buyback program.
Dividend increases and buybacks indicate a strong capital position and confidence in earnings power, said DZ Bank analyst Thorsten Wenzel, who was quoted in a Reuters news report earlier this month. Munich Re said it would buy back more than $680 million in shares.
Despite an increase in gross premium written, Munich Re was saddled with claims from the Chile earthquake last February and BP's spill in the Gulf of Mexico in April, besides the large-scale flooding in Australia.
Several "medium-size" natural catastrophe claims out of Germany, Poland and Turkey also affected results, Schneider said.
Swiss Reinsurance Co., the world's No. 2 reinsurer, reported a fourth-quarter 2010 loss of $725 million, compared with a gain of $394 million in the year-ago period. The firm took a $1 billion charge in the fourth quarter after it announced in November that it had repaid Berkshire Hathaway.
Warren Buffet stepped in to help Swiss Re following massive losses in 2008 connected to the subprime mortgage crisis. The $901 million in losses that year forced the departure of former CEO Jacques Aigrain and a downgrade in the company's credit rating.
Full-year net income of $863 million was up 74 percent over the year-ago period, Swiss Re also reported, but the number fell well short of analysts' expectations of $1.2 billion. The company estimated that floods in Queensland, Australia, in December will cost it an estimated $100 million.
The company's 2010 combined ratio rose to 93.9 from 88.3 percent in 2009, Swiss Re also said, as a result of natural catastrophe claims.
"The only fly in the ointment, in our opinion, is the absence of a buyback, which may disappoint some observers," said Helvea analyst Tim Dawson of the Swiss Re results, as he was quoted in a Reuter's news report.
Swiss Re also raised $4 billion in new capital last year, leaving it with $10 billion more than it needed to regain it's top AA credit rating from Standard & Poor's, the company also reported.
"Over the past two years we have come a long way," said CEO Stefan Lippe, in a statement. "Swiss Re has strengthened its balance sheet, set new strategic priorities and aligned its management structure."
Reinsurers like Munich Re, Swiss Re and Hannover Re, the third largest reinsurer in the world, are facing an excess of capacity, which has made it hard for them to raise rates despite share buybacks and higher dividend payments.
January renewals, said Hannover Re CEO Ulrich Wallin in a statement Feb. 2, were marked by "softening tendencies." In segments such as offshore energy and European auto liability, however, Hannover was able to "push through price increases," he said.
Today's global reinsurance marketplace, said Torsten Jeworrek, a member of Munich Re's management board, was one defined by "lots of competition and excess capacity," but that, despite this, the competition was still manageable for reinsurers with sound cycle management practices.
With the exception of market segments with recent loss experience like Chile, Australia and offshore drilling, prices in the reinsurance market are soft. "We're not dealing with easy markets at the moment," Schneider said.
Reinsurance capital jumped 17 percent in the first nine months of last year, thanks in part to a light hurricane season in the United States and generally weak reinsurance demand, according to Aon Benfield in its January market outlook report.
February 18, 2011
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