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Softening pressures weigh on Platinum in Q2

Platinum kicked off the Q2 reporting season last week, with news of continued top-line shrinkage as the Bermudian reinsurer pursued "profitability over market share" amid softening conditions.

Gross written premiums (GWP) fell by 17 percent to $122.9mn compared to the same quarter of 2013.

"The mid-year underwriting period reflects the deteriorating conditions for all lines of business. Once again it proves challenging to find attractively priced reinsurance opportunities," said Platinum CEO Michael Price on the company's earnings call.

While most focus has been on softening property cat reinsurance rates, Platinum revealed that overall top-line contraction had been driven by its casualty business, where GWP dropped by 29.6 percent in Q2 versus the prior-year period.

But Price advised that Q2 2013 premium figures had benefited from ultimate premium re-estimates, thus making year-on-year comparisons challenging.

He added that there was "no material decline" in the volume of premium that had been written.

"Capacity in the casualty market remains abundant. We anticipate continued downward pressure on risk-adjusted profitability for this segment," remarked Price, continuing that the company had written no finite business since 1 January.

For property cat business, gross premiums for international lines fell by 37.2 percent to $8.1mn, while GWP for the US rose by a marginal 3.8 percent to $20.1mn.

Price said that the deteriorating rating environment had strong-armed the company into accepting business that fell below its targeted return threshold, ultimately hitting the bottom line.

"We used to have a pretty strict approach of kicking out business when it fell below its selected target return," said Price.

"More recently, we have not been able to hold to the 10 percent return standard... So the price to return on equity (RoE) is trending down and they're coming in overall in the high single digits," he concluded.

Platinum delivered an annualised operating RoE of 8.4 percent for the second quarter, as operating income came down by 9.1 percent to $37mn.

Meanwhile, the reinsurer's underwriting performance improved slightly as its combined ratio improved by 20 basis points to 74.2 percent, helped by zero cat losses and strong reserve releases.

However, favourable prior-year development weakened in the second quarter, falling by 35.1 percent year-on-year to $28.6mn.

This came as Platinum was forced to strengthen reserves at its property and marine division by $2.6mn, largely due to an $8.9mn increase in its ultimate loss estimate for Costa Concordia.

In early July, The Insurance Insider revealed that the total protection and indemnity claim for the marine disaster had swollen by $250mn to $1.44bn owing to increased wreck and removal costs.

According to Platinum CFO Allan Decleir, the company has exposure all the way up to $2bn and is on the hook for 2.5 percent of losses.

Platinum also revealed that it had renewed its $50mn retro per-occurrence and aggregate cover for major cat perils from 1 July after letting it lapse in H1 2014.

This has led to decreases of up to 41 percent for its probable maximum loss from US hurricanes.

Perhaps surprisingly, given Platinum's reputation for aggressive share repurchases, the company's second quarter buyback activity sharply decelerated to $35mn - down 77.5 percent from $155.9mn in Q2 2013.

However, Price said that having retro in place had boosted the company's confidence for activity in Q3.

Nevertheless, book value per share has increased by 3.1 percent to $67.38 since 31 March 2014.

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