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Man-made losses hit global reinsurers

Although natural catastrophe losses remained relatively low, a spate of man-made claims blemished the underwriting performance of a handful of major reinsurers during the second quarter of 2014.

The non-life reinsurance combined ratio for our composite of six global reinsurers improved by 3.2 percentage points to 92.9 percent in Q2 2014 versus the prior-year quarter.

Man-made mania

The man-made impact was most severe at the world's leading reinsurer, Munich Re, which disclosed EUR326mn, or 8.2 points, of man-made losses in the second quarter. This pushed the firm's P&C reinsurance business to a Q2 underwriting loss with a combined ratio of 101.4 percent.

It also marked the second consecutive year that the reinsurance giant has suffered higher-than-anticipated man-made losses after a 9.3 point hit in Q2 2013 led to a combined ratio of 99.3 percent.

The largest man-made claim in Q2 2014 was said to be a net fire loss in the "low three-digit million euro range", while a single liability claim cost the group a further EUR65mn.

Natural catastrophe claims during the second quarter came to EUR291mn, or 7.3 points on the combined ratio - roughly in-line with the 7.9 point impact registered in Q2 2013.

This came after Munich Re experienced a EUR180mn late claims notification for the February Japanese snowstorms, EUR50mn of insured damage relating to the Chilean earthquake in April and a further EUR40mn from the Serbian floods in May.

Favourable prior-year development rose by 20 percent to EUR180mn (4.5 points) during the period - a modest rise on the 3.8 points recorded in the same quarter last year.

However, echoing a wider industry trend, this was partly offset by a EUR20mn creep in the reinsurer's estimate for the Costa Concordia wreck, raising its total loss to EUR120mn.

There were also signs of underlying deterioration at Munich Re as the carrier's accident year, ex-cat loss ratio increased by 2.2 points to 67.3 percent.

However, the underlying deterioration was much more pronounced at German compatriot Hannover Re, as the accident year, ex-cat loss ratio increased by a considerable 10.5 points to 68 percent in Q2 2014.

This was largely due to a spike in smaller, more frequent claims, exemplified by a 9.9 point hike in the company's Q2 attritional loss ratio to 67.5 percent.

The impact of net major losses came to EUR74mn, or 4.2 points, in Q2 2014 - less than a third of the 14.4 point hit recorded in Q2 2013.

This included EUR33.3mn of net losses from June's Windstorm Ela and EUR8.9mn from the Japan snowstorms, as well as some large undisclosed property claims.

Despite this improvement, Hannover Re's overall non-life reinsurance combined ratio increased by 1 point to 96 percent.

While Hannover Re did not release any reserves during the period (as usual), the carrier said that it had strengthened its reserves for Costa Concordia by EUR33mn.

According to a recent note by Keefe, Bruyette and Woods analyst Paris Hadjiantonis, Hannover Re's unused incurred but not reported losses stood at about EUR171mn at H1 2014, which could be released in the second half of the year in the absence of major losses.

Underlying losses shrink at Scor and Swiss Re

Meanwhile, the other four members of the Global Re peer group enjoyed improved underwriting performance.

Swiss Re experienced the greatest year-on-year improvement as it returned to underwriting profit following a 7.6 point reduction in its Q2 P&C reinsurance combined ratio to 93.5 percent.

The decline was primarily driven by a drop in nat cat claims from 13.4 points in Q2 2013 to a modest 4.4 points in Q2 2014 - 1.4 points below what was expected.

This was partly offset by less favourable prior-year development in Q2 2014, resulting in a lower 2.2 point benefit versus 3.5 points in Q2 2013.

In addition, expenses worsened by 2.7 points to 33.2 percent, predominantly reflecting a 24.3 percent hike in second quarter acquisition costs.

However, unlike its peers, the underlying loss experience actually improved at Swiss Re as its accident year, ex-cat loss ratio tightened by 2.7 points to 58.1 percent.

There was a similar trend across the border at French reinsurer Scor, which posted a 1.4 point contraction its Q2 underlying loss ratio to 56.6 percent.

The carrier also benefited from a much lighter 5 point burden from cat losses - less than half of the 12.2 point impact reported in the prior-year period.

Reserve releases fell flat in Q2 2014, compared to the EUR31mn, or 2.9 points, released in Q2 2013.

Nevertheless, Scor's overall P&C combined ratio fell by 5.8 points to 92.8 percent.

Bermuda shines

Meanwhile, Bermudian reinsurers Everest Re and PartnerRe trumped their European counterparts, delivering the lowest combined ratios within the Global Re composite.

PartnerRe slashed its Q2 non-life reinsurance combined ratio by 6.3 points to 91.5 percent versus the comparable quarter last year.

This came as cat losses dropped to zero (Q2 2013: 11.5 points) - making PartnerRe the only member of the composite to report no impact.

However, the reinsurer reported a significant 4.3 point increase in its accident year, ex-cat loss ratio to 76.1 percent after being hit by a higher incidence of mid-sized non-cat large losses during the quarter within its global specialty sub-segment.

PartnerRe CEO Costas Miranthis said the individual losses ranged from $8mn to $35mn and totalled some $40mn to $50mn above expectations.

These included a $25mn loss from an explosion at Russian oil refinery Rosneft, in addition to pharmaceutical and satellite claims.

Like many other carriers, Miranthis credited the heightened loss impact to a lumpy quarter rather than a systemic trend.

Meanwhile, reserve releases increased by 45 percent to $161mn in Q2 2014, shaving a significant 15.5 points from the combined ratio - up from 13 points in Q2 2013.

This was partly masked by a 3.3 point increase in expenses to 30.8 percent, which was attributedto enlarged acquisition costs.

Everest Re was the only reinsurer to register a sub-90 percent reinsurance underwriting performance for Q2 2014 with a combined ratio of 81.9 percent.

This represented a 3.2 point improvement on the prior-year period, chiefly resulting from fewer cat losses and a continued propensity for favourable prior-year reserve development.

But the firm's underlying loss ratio broadened by 1.1 points to 50.9 percent as attritional losses mounted.

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