Given the gloom and doom surrounding the reinsurance industry at the moment, one might have expected the sequence of results from insurers and reinsurers in the past week to be bright on the primary side and dark on the side of reinsurers. But it hasn't quite worked out that way.
New York's Alleghany, now predominantly a reinsurer, booked a $334m gain at TransRe, up from $267m the previous year. The primary side also performed well, moving to a profit of $86.7m, from a loss of $46.4m the previous year. Seasoned observers will have noted that the stellar performer on the primary side for Alleghany was RSUI, also known as Royal Specialty Underwriting Incorporated, bought by Alleghany from the then Royal & SunAlliance just over a decade ago for less than £100m.
RSA Insurance had its difficulties in the early 2000s that saw it sell off a number of businesses that perhaps it wishes it still had today – so that it could sell them off. RSUI was one, and what would become the Australian insurer Promina (later snapped up by Suncorp) was another.
But RSA's latest difficulties look even more problematic than those which it a decade ago. On Thursday morning it announced a pre-tax loss of £244m, of which £220m was caused by "management irregularities in Ireland" and about another £400m came from reserve strengthening and adverse weather in the fourth quarter.
RSA's announcement that its "normalised" pre-tax profit was £427m is likely to cut little ice with investors, who instead will be looking at the fact that RSA has said that the impact of the 2013 results meant that a "final dividend cannot be justified", and will be digesting RSA's statement that it hoped to raise £775m in a rights issue, equal to 20% of its current market value. It further intends to focus on its "core" of the UK, Canada, Latin America and Scandinavia, generating about £300m from disposals in 2014. RSA also said that any interim dividend in 2014 is likely to be modest.
Another mainly direct player, QBE, fell to a post-tax loss in 2013, with insurance profit down 33% year on year. Chairman Belinda Hutchinson said it was "disappointing", although the markets thought otherwise – pushing up the QBE share price after hearing that in cash terms the company had made a profit of $761m.
QBE's problems for 2013 were different from RSA's, but in other ways they were similar. At both RSA and QBE the problems were not at home, but abroad. For QBE, the nightmare was North America, which encountered what chief financial officer Neil Drabsch called a "perfect storm" in 2013. Previous reserves were found to be insufficient; previously purchased assets were written down, and the technical result in the crop insurance sector was horrific.
Reinsurers had further cause for cheer this week when the floods receded in the UK. It looks as if most of the losses will fall below the primary insurers' attachments points. One of the insurers that looks like having to take the whole hit on its own books is Direct Line. Its parent, Direct Line Group, was partially spun off by Royal Bank of Scotland in 2012. RBS said this morning that it would be selling off its remaining 28.2% stake in Direct Line Group. Many investors had expressed concern at the initial flotation of the insurer at 175p a share that the RBS holding – which was always going to be sold off eventually – would act as a dampener on the share price. Direct Line Group was unchanged in early trading this morning at 263p, roughly 50% higher than the initial flotation price.
Finally this morning we had the Allianz results, which were definitely strong. Revenue was up 4.1% to €110.8bn, and operating profit rose by 7.8% year on year to €10.1bn. The dividend of €5.30 a share represents an 18% year on year increase. This strong performance is even more notable given the impact of severe mid-2013 weather in southern Germany – Allianz Deutschland's home. Natural catastrophes added 2.9pp to the loss ratio last year, up from 1.7pp the previous year. But Allianz still managed to reduce the combined ratio to 94.3%, from 96.2%. Allianz achieved strength through diversification – one of its saviours this year was Italy, where there was a favourable pricing and claims environment. It also benefited from a turnaround of its business in the US. As RSA ponders yet more focusing on core products within core markets, investors might look to Allianz and wonder how well it would have performed in 2013 if it had not had such a wide range of products and geographical distribution.