Category Archives: Reinsurance

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Buffett Invests in Munich Re, Boosting Share Price

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Munich Re was very happy to recently announce that billionaire Warren Buffett has invested even more money in the company. He now holds a 3.045% stake in the company and news of the investment boosted share price by 2%.

A 30-day view of Munich Re's share price, compared to the 200-day simple moving average.

A 30-day view of Munich Re's share price, compared to the 200-day simple moving average.

In early 2008, Buffett’s investment company, Berkshire Hathaway, bought a 3% stake in Swiss Re. During the U.S. subprime crisis, the company helped rescue Swiss Re from financial trouble with a major loan, helping to strengthen the reinsurance company’s balance sheet.

Berkshire Hathaway itself has reinsurance operations, Berkshire Hathaway Re, which is among the largest three reinsurers worldwide by gross premium income. Buffett has repeatedly said in the past that he isn’t eyeing a takeover of the Swiss company. However, during the past two years, Swiss Re and Berkshire have entered several reinsurance deals, raising speculation that the two firms could merge at some point.

Buffett is no stranger to the reinsurance market. Berkshire Hathaway owns Berkshire Hathaway Re, one of the largest three reinsurers worldwide in terms of gross premium income. Berkshire also owns various other insurance companies, including GEICO, which it acquired in 1996, General Re, which it acquired in 1998, NRG (Nederlandse Reassurantie Groep), which it bought in 2007 and Berkshire Hathaway Assurance, a government bond issuance company.

Risk Management Links of the Day: 01.05.10

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geoengineering

  • Geoengineering in regards to the environment and climate change has increasingly been gaining mainstream interest over the past year after spending most of its days mired in obscurity or outright condemnation. I’ve personally written about it twice in the past few months both in regards to Bill Gates’ discussion on thwarting hurricanes and SuperFreakonomics‘ assertion that widespread geoengineering to slow climate change is a good solution. Still, the concept remains widely misunderstood and obviously has both positive and worrisome components. To help everyone become better informed about the concept, the MIT Technology Review has taken an exhaustive look at the possibilities of society geoengineering our way out of climate change.
  • Rick Nason teaches an ERM class and while skeptical of the practicality of teaching this within an MBA curriculum, he has a question for you: “ERM has created a lot of excitement, but very few successful examples. Explain why you believe ERM has so few successful implementations.” Head over there to answer. And show your work. (via RiskCzar)
  • Les Krantz breaks down the 200 best and worst jobs in the U.S. in his “Jobs Rated Almanac.” And you know what’s number one? Actuary. “Actuaries, who evaluate the financial impact of risk on an organization, fared best because they work during standard business hours and in favorable conditions — indoors and in places free of toxic fumes or loud noise — as opposed to those jobs toward the bottom of the list such as iron worker, dairy farmer and the biggest loser from last year’s study, lumberjack.” Google “Norm MacDonald,” “Weekend Update” and “worst job” to find out what ranked dead last this year — again.

Find an interesting link? Email me any stories, videos or images you come across. Or just follow me on Twitter @RiskMgmt to pass along the news.

The Results Are In

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The Reinsurance Association of America has released the underwriting results for a group of 19 U.S. property/casualty reinsurers for the first nine months of 2009. On the whole, the numbers look pretty good: Even though the group wrote $278 million less in net premiums compared to last year ($18.7 billion versus $19.0 billion), what they wrote was more profitable. The group’s combined expense and loss ratio was 95.1% this year, down from the profit-crushing 104.2% combined ratio reported for the same period of time in 2008.

(Combined ratio essentially is how much it costs to make a buck. If your combined ratio is below 100%, you are making money on underwriting. If it is over 100% – which happens a lot with insurers – then you are losing money, mostly because your claims are outstripping your premiums.)

Ultimately, the companies that posted the largest net incomes were:

  • Swiss Reinsurance America Corporation ($582.9 million)
  • Everest Reinsurance Company ($271.0 million)
  • TRC/Putnam Reinsurance Company ($270.0 million)
  • Odyssey America Re/Odyssey Reinsurance ($219.5 million)

Conversely, the companies posting the worst negative incomes were:

  • National Indemnity Company (-$291.9 million)
  • Munich Re America Corp. (-$56.9 million)
  • American Agricultural Insurance Company (-$50.9 million)
  • QBE Reinsurance Group (-$16.8 million)

On average the entire group did rather well, posting a total net income of $1.3 billion and a total policyholder’s surplus of $74.1 billion, up $2 billion from this time last year.

These numbers shouldn’t be all that surprising, though. According to Guy Carpenter back in April, P/C reinsurers had tightened their rates during the 4/1 renewal season, with national programs rising between 10% and 14% on a risk-adjusted basis. Regional pricing also played a factor; the Northeastern U.S., for example, only saw about a 6% to 8% increase. The price jumps merely extended a rising cost of reinsurance that had already begun by January 1.

Meanwhile, the industry has also had a fairly light catastrophe year. Natural and man-made catastrophes cost insurers about $24 billion this year, compared to the $50 billion they cost last year. While Europe had an above-average year for cat losses (especially natural catastrophes), the calm hurricane season in the U.S. more than balanced things out in favor of reinsurers. This leaves the market well capitalized for whatever 2010 has in store. Hopefully it will be another quiet year, though reinsurance buyers are unlikely to endure additional price increases with a smile at the rate things are going.