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9th September 2012

Global reinsurers significantly improve in first half

Global reinsurers' operating performance improved significantly in the first half of 2012, according to Fitch Ratings in a newly-published report.
Underwriting results of a group of non-life reinsurers that Fitch tracks on an ongoing basis improved significantly in the first half of 2012, due mostly to sharp reductions in catastrophe-related losses, which declined to approximately 2% of earned premiums from 44% in H111. As such, this group posted a dramatic drop in the underwriting combined ratio to 88.0 in first-half 2012 compared with 127.5 in first-half 2011.
A return to solid underwriting profitability, coupled with higher unrealised gains, resulted in shareholders' equity growth of 6% for the group since end-2011. In addition, as underwriting opportunities have improved somewhat, the group has experienced marginal growth in premiums written.
The (re)insurance industry experienced manageable and below-average natural catastrophe losses of $12bn in H112, well below the first-half record set last year of $81.7bn in insured losses, primarily from the Japanese earthquake and tsunami, the New Zealand earthquake and the US spring storms. The majority of losses in H112 were from severe US thunderstorm activity that totaled $8.8bn, most of which was borne by the primary insurance sector rather than reinsurers.
The severe summer droughts that hit parts of the US generated limited catastrophe losses in the first half of 2012. However, Fitch expects that the crop reinsurance business line will generate a material loss for the full year, although these losses will have more of an impact on earnings than capital, as crop reinsurance accounts for a relatively small portion of reinsurers' business. Favourably, such losses could lead to increased crop (re)insurance pricing and improved market conditions in the near term.
The pre-tax income of the life reinsurance operations monitored by Fitch increased by 3.5% compared with the prior-year period. In addition, this group of life reinsurance operations reported a moderate increase in net premiums earned through the first six months of 2012.