Analysis from the Reinsurance Association of America (RAA) reveals that a group 18 U.S. reinsurers fell to a net income loss of $2.4 billion in the first-quarter of 2017, driven largely by National Indemnity Company (Nico) recording a net income loss as its combined ratio surpassed 100% coupled with over $5.8 billion of other income losses.
The RAA provides data and analysis on a group of 18 U.S. reinsurance companies, which reveals that during the first-quarter of 2017 the group recorded a net income loss of $2.4 billion, with a combined ratio of 95.7%, and an increased loss ratio of 72.3%, when compared with the same period last year.
In Q1 2016, the group of reinsurers recorded a net income gain of $2.5 billion, a combined ratio of 92.1%, and a loss ratio of 67.7%, reveals the RAA. While Reinsurance News reported previously that for the full-year 2016 the group’s combined ratio hit 95.2% with a net income of $10.6 billion.
Nico, a subsidiary of Warren Buffett’s Berkshire Hathaway, fell to a $2.9 billion net income loss in the opening three months of 2017, driven by a combined ratio of 100.4% and subsequent underwriting loss of roughly $138.5 million which combined with a huge $5.88 billion other income loss.
While unclear, the large, other income loss recorded by Nico could be related to the adverse development reinsurance agreement with large primary insurer AIG, with the firm recording an other income loss of just $237 million in Q1 2016, and net income of $1.56 billion.
But it’s clear from the RAA analysis that Nico’s Q1 2017 performance dragged down the overall performance of the group of 18 players, which is made up of U.S. subsidiaries and U.S. headquartered reinsurance companies.
Axis Reinsurance Company, Munich Re America, Co., Partner Reinsurance Company, and SCOR Reinsurance Company also recorded net income losses in Q1 2017, but none were anywhere near as steep as seen with Nico, with SCOR’s being the highest at roughly $14 million.
Furthermore, SCOR recorded a combined ratio of 100%, Partner Re a combined ratio of 111.8%, and XL Reinsurance a combined ratio of 160.6%, which contributed to the further weakening of the group’s combined ratio to 95.7% in the period.
Generally, excluding Nico and the lower underwriting losses and net income losses mentioned above, the group of 18 U.S. reinsurers performed relatively well in a very challenging, competitive and softening landscape.
Gross premiums written (GPW) increased to $18.9 billion in Q1 2017 when compared with the previous year as did net premiums written (NPW) to $11.6 billion, compared with $11.1 billion a year earlier. The loss ratio increased for the combined group from 67.7% in Q1 2016 to 72.3% in the first-quarter of 2017.
Net investment income also declined in 2017 when compared with the previous year, falling from $1.87 billion to $1.68 billion in Q1 2017.
The operating environment clearly remains challenging across the global reinsurance market, but it’s important to remember that absent the segment losses recorded by Nico the group of 18 reinsurers discussed by the RAA would have most likely recorded a net income gain. However, with the softening market expected to persist and rates predicted to fall further, the profitability of U.S. reinsurers is likely to come under increasing pressure in the months ahead.
