1 March 2012Re/insurance

2011 annual results: still standing

Few would argue that 2011 was anything but a difficult year for the re/insurance industry. The second Christchurch earthquake, the earthquake and tsunami in Tohoku, flooding in Queensland, tornadoes in the mid-West, Hurricane Irene, the Thai floods—it seemed that if catastrophes had the potential to occur, then nature obliged. Bermuda’s re/insurance industry found itself unhappily gripped by the drama, with significant and accumulated losses pummelling the balance sheets of even the hardiest Island player.

Combined ratios, after a far from glowing 2010, took a bruising in 2011. They leapt from an Association of Bermuda Insurers and Reinsurers (ABIR) average of 86.3 percent in 2010 to a worryingly high 110.7 percent average in 2011, with no Bermuda firm able to buck the trend. And net income took even more of a battering, the ABIR average declining to $39.7 million, down from $587.1 million in 2010. Again, no-one escaped the difficulties of 2011, with troubled underwriting results and meagre investment returns creating a perfect storm.

About the only positive news was a mixed picture on gross written premiums. Most Bermuda players increased the amount of business they wrote during the year, although it is evident from rising combined ratios that the pursuit of business has not been without its costs. Nevertheless, the increased level of business written in a year with few positives bodes well for future growth and profitability.

Just a brief look at the annual results of any reinsurer would provide an indication of where the damage was done, with international business accounting for a disproportionate level of losses incurred. Competitively priced business in those geographies—and manywould now justifiably argue that it was too competitive—left many exposed. And the stellar rates rises seen on some lines, and expected on others, are indicative of the risk-pricing mismatch in 2011. US losses added further fuel to the fire, while investment returns faced the lingering after-effects of the financial crisis and did little to buoy up reinsurance results.

The start of 2012 has been relatively benign by contrast and many would argue, needed to be. While for most Bermuda reinsurers 2011 was an earnings, rather than a capital event, there were firms that felt losses acutely. Many faced their worst results since formation. Nevertheless, this is the nature of re/insurance—its ebb and flow— and while 2011 was a year best forgotten, the industry will be looking to lessons learned. Less volatility and less international business look likely to be the order of the day for the coming year. Pricing will reflect losses—and will need to—but 2012 is likely to be a cautious year. After the bloodying of 2011 the industry will be hoping for the opportunity to lick its wounds and return to profit. A turn in the market, if not a dramatic one, will be just the medicine.