While the industry waits with bated breath to see if it has made an underwriting profit in 2006, Helen Yates and Nick Thorpe provide a roundup of the results.

"If you fail to make a profit in 2006, get out of the business," said Maurice "Hank" Greenberg, chairman and CEO of CV Starr and former AIG chairman and CEO, at a recent lecture in London. After two years of major catastrophe losses, Mother Nature spared the industry in 2006. The combination of a hard market for catastrophe insurance and reinsurance and a benign season has resulted in record profits and a potentially rare occurrence in the reinsurance industry ... an underwriting profit.

"It seems clear that the insurance industry will generate an underwriting profit for the 2006 year, and for the second time this decade," said Endurance CEO Kenneth LeStrange. With the occasional exception, most company results, which have trickled in one by one over the last few weeks, support the view that 2006 was extremely kind to an industry that bets on risk, and so often loses. Not that this means complacency can set in. "In the volatile and cyclical nature of the property/casualty industry, another devastating event will come without question," warned AM Best in a recent report.

But enough doom and gloom and back to bumper profits, broken down market by market. This is not an exhaustive list, merely a snapshot of the performance of the major players in 2006. If overall trends can be observed, beyond the huge growth in profits, that is the clear evidence that excess capital is being returned to shareholders on a dramatic scale and that mergers and acquisitions are once again on the agenda.


Swiss Re could not have hoped for a better year following its acquisition of GE Insurance Solutions (GEIS). Not only did the world's largest reinsurer increase its net income by 98% to CHF4.6bn ($3.8bn), it also saw premiums earned increase by 10% to CHF29.5bn. Property/casualty was the largest generator of profits, contributing an operating income of CHF5bn (an increase of CHF4.2bn on 2005), a combined ratio of 90.4% and a 7% boost in earned premiums, at CHF17.4bn.

At its results briefing, Swiss Re also revealed plans to buyback shares for up to CHF6bn over the next three years, including General Electric's stake in the company (Swiss Re gave GE 10% of its shares as part of the GEIS transaction). The heavyweight reinsurer also proposed a 36% increase in the dividend to CHF3.40 per share. Jacques Aigrain, Swiss Re's CEO, said: "Based upon Swiss Re's strong financial position and our confidence in driving sustainable earnings growth, Swiss Re plans a share buyback programme and proposes to increase its dividend."

A significant share buyback was also on the cards for Munich Re. The reinsurer has already completed its repurchasing of just over eight million shares, costing around EUR1bn in total. According to Nikolaus von Bomhard, Munich Re chairman, "This step shows how we are using active management to gear our capital to requirements. With the share buyback and the planned shareholders' dividend (which was boosted by 31%), we will have given the capital market nearly EUR2bn by the end of April."

Munich Re said its figures for 2006 had exceeded expectations, revealing a record profit of over EUR3.5bn ($4.6bn), up 28.5% on 2005. Making the most of hard reinsurance rates, it almost doubled its reinsurance profits to EUR2bn ($2.6bn) and reported a combined ratio of 92.6%. But it wasn't all good news for the world's second largest reinsurer. A 52% drop in profits was recorded in the fourth quarter. Looking ahead, von Bomhard said pressure on rates would produce challenges. "It's less favourable than it was a year ago but it's not an avalanche that we have to confront now," he added. He said the company must deliver a net income north of EUR3bn for 2007, despite facing losses of up to EUR600m from Windstorm Kyrill. "It's an ambitious target but I think we can achieve it."

Converium - still fending off advances from acquisitive French reinsurer SCOR - may have only recorded a modest net income of $57.1m for 2006 (down from $68.7m in 2005) and an improved non-life combined ratio of 96.3% (significantly lower than 107.2% for 2005), but it has every reason to celebrate. The successful sale of its North American operations to National Indemnity in October 2006 (for $295m), the return of some old clients and a benign catastrophe season in 2006 all contributed to the Swiss reinsurers' recovery.

Following success at the 1 January 2007 renewals and the release of its 2006 results, Standard & Poor's finally restored its coveted "A-" rating. S&P said this reflected the group's strengthened management team and sound infrastructure, strong competitive position and strong capitalisation. The upgrade has given Converium CEO Inga Beale an additional boost of confidence for 2007. "Based on our strong 2006 financial results and our robust franchise, we are now well positioned to capture growth opportunities arising from the upgrade throughout 2007," she said.

Backing up its bullish takeover intensions, SCOR announced its profits had doubled in 2006. A year on from regaining its all-important "A" rating, a full recovery was evident. The French reinsurer revealed profits of EUR306m and saw its gross written premiums (GWP) grow 22% to EUR2,935m. Following its successful acquisition of Revios in 2006 (which made it the world's fifth largest life reinsurer) GWP for its life operations grew 15% to EUR1,181m.

Last on the list of large European reinsurers is Hannover Re. The German giant said it had achieved its best ever results. With market conditions remaining favourable in 2006, the group generated an operating profit of EUR819.9m in 2006, up from EUR91.6m in 2005. Group net income increased to EUR514.4m, up from EUR49.3m in 2005. Gross premium income of EUR9.3bn for 2006 came in on par with the previous year's EUR9.3bn. Hannover Re put the lack of growth in this area down to EUR1.6bn booked by Praetorian Financial Group not being recognised in its results due to the company's impending sale. The outlook for 2007 remains favourable for Hannover Re. "Although the year got off to a stormy start with Kyrill, we expect a return on equity of at least 15% for 2007", CEO Wilhelm Zeller noted. The company is targeting an unchanged payout ratio of 35% to 40% in its dividend.


A benign hurricane season in the North Atlantic in 2006 was also a blessing for many Lloyd's syndicates. That, along with the Equitas/National Indemnity deal and acquisitive interest in the market means it's currently the place to be. In 2007, the Lloyd's market comprises 66 syndicates, with capacity at an all-time high of £16.1bn, up 9% from £14.8bn in 2006.

All this led to Lloyd's revealing a massive £3.7bn profit for 2006, up from a loss of £103m the previous year. GWP were up to £16.4bn from £14.9bn in 2005, while the combined ratio was a healthy 83.1% after last year's 111.8%. This compares well to 86% for Bermudian reinsurers and 95% for US reinsurers. An understandably upbeat Lord Levene, chairman of Lloyd's, said: "2006 was an excellent year for Lloyd's and the market performed well. During the year we benefited from strong underlying conditions and an exceptionally low level of catastrophes." However he also warned against expectations of a repeat performance in 2007. "It would be unrealistic to expect such a fantastic claims experience this year," he added.

Of the largest syndicates, Brit reported a 198.6% leap in profits to £186.3m, up from £62.4m in 2005. This was despite having to pay additional losses on Hurricanes Rita and Wilma, when reclassified losses triggered industry loss warranty (ILW) payouts. As a result, the company is no longer underwriting retrocessional ILWs or Gulf of Mexico catastrophe-exposed energy business.

Despite setting up Bermudian retrocessional sidecar Norton Re last year, Brit - unlike Hiscox, Amlin and Catlin - is not looking to establish a greater Bermuda presence. "To move offshore would not be appropriate for Brit Insurance at the current stage of our development," the company said in its preliminary results. With its 100% contract certainty success at the 1 January renewals, Brit says its focus is on "ensuring that London, and Brit Insurance, are not disadvantaged in the long term by higher operating costs, taxes and regulatory burdens compared with global competition".

Amlin, with its new Bermuda operations doing well out of a benign hurricane season, recorded its best ever combined ratio in 2006 of 72% and a record pre-tax profit of £342.7m, up 84% on 2005's figure of £186.7m. GWP was also up 12% to £1,113.8m. "This result is influenced by the low level of natural catastrophes in 2006 which was in stark contrast to the previous two years," said Amlin chairman Roger Taylor in the company's preliminary results. "However, we were well placed, having formed Amlin Bermuda, to grow our catastrophe income into very buoyant market conditions." The company also said it would pay a special dividend. The strong results and favourable outlook means the company "may return significant capital to shareholders over the coming years," added Taylor. In a conference call, Amlin CEO Charles Phillips said the company would not be following rivals Hiscox and Omega in redomiciling to Bermuda. He also assuaged fears of a significant negative impact from the new Florida legislation, stating in the results: "We estimate that this will reduce our reinsurance premiums for Florida risk by around $40m".

Following its successful purchase and integration of Wellington at the end of 2006, Catlin reported net income of $428m for the year (which includes £169.7m from Wellington); GWP of $2.72bn (up 15% on 2005 despite a reduction in catastrophe exposures for both companies) and a low combined ratio of 87%. With the company finally taken off negative watch by AM Best on 2 April, the company is looking to take full advantage of its new scale and greater diversification in 2007. "We are confident about out prospects following the acquisition of Wellington, and this confidence is reflected in the proposed total dividend of 23 pence per share, an increase of 48%," said Sir Graham Hearne, Catlin chairman.

Hot on Hiscox's tail, Kiln arguably provided the most dramatic results statement. It announced it intends to introduce a new Bermudian domiciled holding company for the Kiln Group, to be named Kiln Ltd, and to establish a new class 3 Bermudian insurer, Kiln Re. Kiln also announced a record year for 2006. Profits before tax were £64.1m, up from £8.5m in 2005. The company has also proposed a 33% increase in its dividend. Edward Creasy, chief executive officer, said: "2006 was an outstanding year for Kiln ... we expect that our new Bermudian operations will be complementary to Kiln's existing Lloyd's business."


Bermuda was dealt a crushing blow with the news of Florida's new legislation in January. The new laws sent this particular cash cow to the abattoir by effectively transferring responsibility for property catastrophe re/insurance from the private market to the state. And the impact is already being felt. Initial estimates are that lost premiums could range between $2bn to $4bn, potentially up to 25% of the property cat market. "The bill mortgages the future of Floridians," said Reinsurance Association of America president Frank Nutter. "It's a 'pray now, pay later approach'."

The raft of sidecars and other structured risk-transfer vehicles formed in the wake of the favourable pricing environment and, more recently, benign storm season are the biggest losers though. Investor demand for these vehicles is likely to wane in 2007, possibly leading sidecars to shut down early. But the real effects of the bill won't be felt properly until mid-year when most of the Florida cover is renewed.

Despite this setback though, 2006 was a record year for the Bermudian reinsurance market, according to the latest Benfield Bermuda Quarterly report. Total capital grew by 24% in 2006 to $64bn. Most companies recouped their hurricane losses of 2005 and 2006 and net income totalled $11.6bn compared with a loss of $2.1bn in the previous year. The aggregate combined ratio decreased from 116.6% to 86.3% due to the very light catastrophe burden.

XL reported some of the strongest results for 2006, weighing in with a fourth quarter 2006 net income of $481.1m, compared to a net loss of $821.9m for the same period the previous year.

Montpelier Re, recorded income of $362m for the year, and what must be one of the lowest combined ratios ever witnessed for Q4. Anthony Taylor, chairman and CEO, said: "Our quarterly combined ratio was 35.7%, a reflection of a favourable pricing environment, the low level of catastrophe losses, zero development of the 2004 and 2005 hurricane reserves and $17m of net favourable reserve development on prior accident years."

Class of 1993 graduate PartnerRe reported a healthy net income of $749m after heavy losses the previous year from hurricanes Katrina, Rita and Wilma. Historically the company has minimal property cat exposure in Florida but CEO Patrick Thiele still underlined the benefits of the company's diversified strategy. "Overall, this legislation does nothing to change our strategy, but it certainly underscores the validity and the benefit of having a diversified portfolio."

Lancashire completed its first year of operation with an operating income of $180.5m, a net profit of $159.3m and GWP of $626m. With a combined ratio of 44%, Lancashire confounded expectations by choosing to retain its capital for "2007 opportunities", rather than issuing generous dividends like many of its rivals. "It's easy to make money when pricing is great," said chief financial officer Neil McConachie, "but to make an attractive long-term return for investors you've got to do a great job in the soft market."

Everest Re followed the more popular path of dividend payouts after posting a strong set of results for 2006. For the full year Everest reported earnings of $840.8m compared with a prior year loss of $218.7m, although total revenues did slip from $4.56bn to $4.52bn. The company subsequently doubled its quarterly dividend to $0.48 per share. However, having set up an insurance platform in Florida last year, the outlook is somewhat uncertain. "Last year, Everest wrote about $50m of Florida excess-of-loss cat business," said Joseph Taranto, chief executive officer. "I would expect that most of that business would not be renewed."

Hiscox, meanwhile, grew its exposures in the US catastrophe market, "an area where 12 months ago people were saying Armageddon was nigh," according to CEO Bronek Masojada. GWP was up 31% to £1.13bn and net revenue grew 23% to £1.01bn. Profit before tax was £201.1m, a 186% increase on the 2005 figure. Masojada identified the company's move to Bermuda in December 2006 as one of the reasons behind its improved balance sheet.

United States

With all eyes nervously on Florida after the recent legislative amendments, it was somewhat refreshing to read the 21-page missive from the "Oracle of Omaha" that accompanied the Berkshire Hathaway results. Obviously buoyed by the $11bn net earnings and almost $100bn revenues generated by the company, Warren Buffett's chairman's statement reads more like a family newsletter than an opening annual results statement for the 14th biggest company in the world (according to Forbes). "I don't think I could do the management job (others) do," he laments at one point. "I know I wouldn't enjoy many of the duties that come with their positions ... For me, Ronald Reagan had it right: 'It's probably true that hard work never killed anyone - but why take the chance?'"

Buffett's unique approach to managing a multi-billion dollar empire seems to be paying off: GEICO, Gen Re and Berkshire Hathaway Reinsurance Group (aka National Indemnity) generated a 130% increase in pretax earnings to $8.15bn in 2006. Following a costly storm season in 2005, including $3.5bn in claims for Berkshire, the company raised premiums amid fears of another busy season. "Our most important business, insurance, benefited from a large dose of luck: Mother Nature, bless her heart, went on vacation," Buffett said. "After hammering us with hurricanes in 2004 and 2005 - storms that caused us to lose a bundle on super-cat insurance - she just vanished." But he cautioned shareholders to be prepared for the deterioration of insurance results in 2007, adding: "It's naive to think of Katrina as anything close to a worst-case event."

AIG, meanwhile, also posted a strong performance after the costly regulatory settlements of 2005. Net income was up to $14.05bn, from $10.48bn the previous year. The results proved a departure from the shadow of the regulatory burden borne by the company the previous year. AIG posted costs of $2.88bn in hurricane claims and legal settlements in 2005 and made a point of distancing itself from its recent troubled past. AIG also announced an $8bn share buyback scheme and dividend programme, including buybacks of up to $5bn in 2007.

On the life side, Reinsurance Group of America (RGA) posted an improved net income of $288.2m compared to $224.2m the year before. Consolidated premiums were also up 12% to $4,346m from $3,866m. Greig Woodring, president and CEO of RGA, put this down to the organisation's overseas operations and picked out Asia as a target for future growth.

- Helen Yates is editor and Nick Thorpe is senior reporter of Global Reinsurance.