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Paris Re 'encouraged' in Q1 but again adopts cautious tone

Paris Re has given a cautious welcome to price hardening in some of its core short-tail lines of business, but has again struck a notably less excitable tone than many in its global P&C (re)insurance peer group, highlighting particular disappointment in continued price competition in casualty lines.

The firm unveiled a Q1 net written premium fall of 10.2 percent to $575.2mn compared to the same period a year earlier as the strengthening dollar and the firm's decision to scale back from credit and surety lines and exit Gulf of Mexico wind covers made their presence felt.

At constant exchange rates, net written premium decreased by 2.8 percent and the firm returned an overall combined ratio of 92.2 percent against 93.3 percent a year earlier, as losses from the firm's casualty segment narrowed from a combined ratio of 108 percent to 102 percent and facultative reinsurance reined in Q1 2008's hefty large-loss affected 123 percent to a respectable 84 percent for the period.

The impact of the economic crisis has begun to be felt directly with Paris Re revealing that its credit and surety business generated a 179.7 percent loss ratio in the first quarter - up from 45.2 percent in the prior-year period.

The company also took a net $19.4mn pre-tax loss from European Windstorm Klaus in the period.

However, its overall loss ratio at 67.4 percent was not significantly ahead of the 60.8 percent generated in the first quarter of 2008 as it benefited from prior-year reserve releases of $8.2mn, up from $0.8mn.

The positive movement was aided by a $9.3mn reduction in its Hurricane Ike loss burden, and an $11.9mn reserve release on its property and fac lines of business - partially offset by a $13mn reserve increase in its credit and surety business for Q4 2008.

Paris Re's difficulties in the credit insurance market are reflective of wider problems in a class stung by the financial crisis, and follow Bermudian Axis Capital revealing in its Q1s that a combined ratio hit by claims activity on its trade credit and bond (re)insurance business.

Notwithstanding the above on the firm's conference call CEO Hans-Peter Gerhardt explained that terms on the company's remaining credit and surety book had now rebalanced firmly in the reinsurer's favour with ceding commission levels being cut back considerably.

Elsewhere the firm saw shareholders' equity steady to $2.04bn from $2.17bn a year earlier as a result of share buybacks and dividend distributions over the period, however total financial investments held firm at $5bn.

The firm highlighted a conservative asset portfolio allocated 84.9 percent to short dated fixed income with an average Standard & Poor's credit rating of AA- of which 32.0 percent was in government bonds, 14.5 percent in agencies, 2.3 percent in ABS, 36.1 percent in corporate bonds, 14.3 percent cash and cash equivalents.

Of its ABS exposure Paris Re detailed total ABS assets with a market value that had fallen to $112.9mn from $120.9mn in Q4 2008.

In a lack of bullishness that contrasted with many of his London market counterparts, Gerhardt said: "The much predicted hard reinsurance market has so far not materialised. However, we are encouraged by adequate price increases we have been able to obtain in many of our core segments."

Explaining that it was only cat-exposed business that was seeing meaningful rate rises, Gerhardt lamented the flatness of non-cat lines and the disappointing weakness of casualty business, barring upticks in pricing for professional indemnity for the financial institutions and professionals sector.

The Paris Re CEO said that even in these loss-affected casualty segments the double-digit price rises witnessed so far were extremely disappointing and far short of the "several hundred percent" mid-eighties liability crisis-style increases his firm would be looking for to re-engage with the US casualty marketplace in any meaningful way. He also described his firm's casualty much-improved combined ratio of 102 percent for the quarter as "not a happy number".

The firm reported that April renewals in Japan confirmed the positive momentum in catastrophe pricing with rate increases around 5 percent on a risk-adjusted basis. However the strengthening of the Yen against the dollar had forced the firm to adjust the company's exposure.

The firm's shares reacted in a subdued manner to the outlook, trading sideways to end last week at EUR13 on the Paris Bourse.

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