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Everest Re, Validus among insurers that saw cat loss deterioration in H1

Six global insurers and reinsurers suffered higher losses from natural catastrophes in 2017 than expected, according to a new report from reinsurance broker Willis Re.

From a group of 17 insurers and reinsurers that disclosed relevant data, Willis Re's study found that 11 companies were able to release money from reserves in the first half of 2018 that they had set aside to cover cat losses from last year, boosting profitability. The company that benefited the most was Swiss Re AG, which released $250 million.

But six companies — Everest Re Group Ltd., Validus Holdings Ltd., Hannover Re, Markel Corp., Beazley PLC and Mapfre SA — had to put extra money into reserves because 2017 claims were higher than first anticipated. The worst hit was Everest Re, which poured another $532 million into reserves. The other five saw relatively modest reserving increases, ranging from $33 million for Validus to just $7 million for Mapfre.

Underwriting improvement

Overall, the group of companies enjoyed slightly less of a benefit from reserve releases than in previous periods. Reserve releases cut 3 percentage points from the 17 companies' collective combined ratio for the first half of 2018. In the first half of 2017, reserve releases lowered the combined ratio by 3.6 percentage points.

"Looking ahead, longer-term reserve releases must be reaching exhaustion, which may have a deleterious effect on future results," said James Kent, Willis Re's global CEO.

Underwriting performance improved for the group with the collective combined ratio falling to 93.3% in the first half from 94% in the same period of 2017. Willis Re attributed the drop to a more muted impact from catastrophe losses thus far in 2018. With the effects of catastrophes and reserve movements stripped out, the combined ratio dipped to 95.1% from 95.3%.

Deteriorating performance

Return on equity for the group of 17 companies was almost unchanged at 8.5% in the first half of 2018, compared with 8.4% in the same period of 2017. But Willis Re said underlying ROE, which assumes a more typical level of catastrophe losses than the benign experience seen in the first half of 2018 and excludes benefits from reserve releases, fell to 3.4% from 3.7%. That weakening is part of a multiyear downward trend; the underlying ROEs for the first halves of 2016 and 2015 were 4.5% and 4.9%, respectively.