Chennai: India's national reinsurer General Insurance Corporation of India (GIC) is ranked 39th amongst the world's first 40 reinsurers by the credit rating agency, Standard & Poor's Rating Services (S&P).

In its report, Global Reinsurance Highlights for the decade 1994-2003, S&P has ranked the reinsurers based on their net reinsurance premium booked by them.

For the first time in 2003, GIC figures in the S&P's ranking list with a net reinsurance premium of $946.7 million.

According to Stephen Searby, Standard & Poor's credit analyst, "This special edition of Global Reinsurance Highlights will give some insight into the trends that have shaped the industry over the past 10 years."

The report shows that mergers and acquisitions have marked the decade under review. In addition, the new class of reinsurers based in Bermuda started to consolidate the operations.

The decade in a capsule

1994: In the capacity-starved period post Hurricane Andrew, property rates hardened dramatically, and the combination of the Northridge earthquake and a very bad year for aviation losses failed to hold back strengthening profitability (industry average ROR of 6 per cent). The US-based reinsurers had outperformed the global average for the previous five years. The main merger and acquisition (M&A) news of this year was the divestment of Swiss Re's primary operations to Allianz and Winterthur for Swiss franc (SFr) 5.5 billion ($4.7 billion at SFr0.85 to $1.0).

1995: With the pricing cycle past its peak, reinsurers' coffers full of cash and growth ambitions remaining high, it was unsurprising that a flurry of M&A activity took place in 1995 — General Re acquired Cologne Re for $1.5 billion; Employers Re purchased Frankona Re and Aachener Re; French reinsurer Abeille Reassurance was swallowed up by AXA; and Prudential of the US saw the strong investor interest as an opportunity to spin off its reinsurance operations into Everest Re.

1996: Two new names — Lloyd's and Allianz — joined the Global Reinsurance Highlights listings covering the 1996 financial year. Another entrant to the list this year was property catastrophe writer, Mid Ocean Reinsurance Co Ltd, underlining the growing share of the global market held by Bermudian companies (approximately 4 per cent in 1996), which resulted in part from the problems experienced by Lloyd's in the early 1990s.

The year was also marked by further significant acquisition activity — Munich Re completed its massive $3.3 billion acquisition of American Re, completing the creation of the "big four" global reinsurance groups and; Swiss Re, as part of its strategy to develop its life and health reinsurance business, purchased Mercantile & General Reinsurance Co. Ltd., one of the few remaining independent specialist UK reinsurers.

1997: The industry booked a record aggregate ROR of 13 per cent in 1997, on the back of the lowest property losses for a decade. During the year Munich Re for the first time publicly revealed the extent of its hidden reserves, resulting in a massive nine-fold increase in adjusted shareholders' funds.

At the same time, Partner Reinsurance Co. Ltd.'s acquisition of Societe Anonyme Francaise de Reassurances underlined the growing confidence of the so-called Bermudian "Class of 1993" as these reinsurers sought to diversify away from their property catastrophe and excess liability business roots. Also this year, Swiss Re purchased Unione Italiana di Riassicurazione SpA (renamed Swiss Re Italia SpA).

The first public securitisation involving the transfer of insurance risk took place in 1997 (Residential Re).

1998: A more normal loss pattern returned in 1998, with a $3.5 billion industry loss on Hurricane Georges. In addition, there was severe tornado and storm activity in Midwest US, as well as material aviation and satellite losses. Consequently, the aggregate industry ROR fell, but still remained at a respectable 10 per cent thanks largely to buoyant investment conditions and record levels of capital (the adjusted shareholders' funds of the largest 25 groups rose by 16 per cent in 1998).

Notable entrants onto the list were QBE Insurance Ltd., St. Paul Reinsurance Co. Ltd., and New Reinsurance Co. (Munich Re's Swiss subsidiary). During 1998, the twin motivations of maintaining market share and strategic diversification accounted for another year of major consolidation activity. In particular was the purchase by Gerling of US reinsurer Constitution Reinsurance Corp.

In addition, XL Capital Ltd. acquired Mid Ocean Reinsurance Co. Ltd., and GE Global Insurance Holdings Corp., Employers Re's parent, sought to diversify away from direct distribution with its purchase of US broker reinsurance group Kemper Re and Eagle Star Reinsurance Co. Ltd. in the UK. Finally, Swiss Re acquired Life Re Corp.

1999: The timing of the year's largest loss — windstorms Lothar, Martin, and Anatol, which swept across Western Europe during the Christmas holiday period, causing insured losses of $6.4 billion (at 2003 prices) — did not help reinsurers' nerves. In aggregate, the year brought a then estimated $27 billion of total insured losses to an industry struggling near the bottom of a premium rate cycle.

In particular, the year exposed those reinsurers relying on retrocession with limited sideways protection. As the three big European storms took place at the end of the year, most 2000 renewals had already been negotiated and, consequently, the beneficial impact of the resulting rate increases was not felt until 2001.

However, it was not only the non-life reinsurance sector that was suffering losses: early in 1999, Cologne Life Reinsurance Co. (US) announced it had made a substantial provision for losses on Unicover. This year also saw XL Capital Ltd. buy Nac Re Corp. in the US and a minority interest in French reinsurer Le Mans Re later renamed XL Re Europe).

2000: Any relief due to the non appearence of major Y2K claims was short-lived as the global reinsurance industry posted its worst aggregate result this year. The combination of the previous year's storms and the weak pricing took a number of casualties. In particular, the Australian reinsurance market, contracted just as fast as it expanded.

The global expansion strategies pursued by Reinsurance Australia Corp. Ltd., New Cap Reinsurance, and GIO Insurance Ltd. ended in ignominious withdrawals or run-offs. Outside of Australia, a badly hit Imperial Fire & Marine Re-Insurance Co. Ltd. was taken over by Rhine Re (now Alea), and other withdrawals included Sphere Drake, Cie. Transcontinentale de Reassurance, and Risk Capital Reinsurance Co. La Salle merged with Trenwick Group Inc., while Terra Nova was purchased by US insurer Markel Corp.

2001: Inevitably, any retrospective on 2001 will be dominated by the events of September 11. However, despite the scale of the loss, which lopped an estimated $20 billion off the capital of the reinsurance industry, only one reinsurer, Taisei Fire & Marine Insurance Co., failed directly as a result, due primarily to its involvement with the Fortress aviation pool.

Even without the 9 / 11 loss, 2001 was a poor year with increasing reserve development in the US and a number of other large losses in the final quarter. In October, Zurich Financial Services spun off its reinsurance operations (into Converium). Later in the year, Alm Brand withdrew its support for Copenhagen Reinsurance Co. Ltd. Some $9 billion was raised to support the creation of eight new companies on the island.

Finally, Swiss Re continued its reshaping of the life reinsurance sector, with its purchase of Lincoln National Corp. giving it an estimated market share of 30 per cent.

2002: The term 'perfect storm' was used to describe 2002, as the equity markets worldwide plunged and the soft pricing of the 1997-2001 underwriting years in the US really began to be felt. The fallout in the equity markets hurt a number of European groups — in particular, Munich Re, which saw unrealised gains on investments (including investments in associated enterprises) fall Euro 17 billion, and Swiss Re, which reported an SFr3 billion drop in unrealised gains. Reserve additions by Munich Re's American Re and Employers Re alone amounted to more than $5 billion, and these were not isolated cases.

During the year Gerling's non-life reinsurance operations were put into run-off; Trenwick America Reinsurance Corp. was forced to stop underwriting; and two financial reinsurers — SCOR's CRP unit (comprising Commercial Risk Reinsurance Co. Ltd. and Commercial Risk Re-Insurance Co.) and Sirius International Insurance Corp.'s Scandinavian Reinsurance Co. Ltd — stopped underwriting. Others sought to exit property / casualty reinsurance: St. Paul Cos. Inc. spun off its reinsurance operations into a new, Bermuda-based reinsurance company, Platinum Underwriters Ltd., while Hartford Financial Services Group Inc. sold its reinsurance business.

2003: The events of 2003 will no doubt still be relatively fresh in most people's minds, not least because the year was marked by a fundamental shift in financial strength as a number of the large multiline groups had their ratings cut due to their longer term profitability record and prospects. The stabilisation and then partial rebound of the capital markets will also no doubt characterise the year in future, the peak of the cycle for property rates, and a lower-than-average year for catastrophe losses.