Chile and Xynthia catastrophes cause Q1 underwriting loss
XL Capital chief executive Mike McGavick has said BP’s Gulf of Mexico oil spill will cost it $30m from claims tied to property damage to the Deepwater Horizon rig operated by Transocean, Down Jones reports.
"It's much too early to know what the insurable losses are on the total basis and what portion of these losses XL might cover, but we can say this: We believe that our total property damage exposure to the rig itself is approximately $30m, including $5min reinstatement premiums, and we have in fact already paid much of this in claims," McGavick said. "That would equate to a roughly $900m industry event."
The oil rig claim came after XL announced Q1 results that showed its combined ratio topped 100.5% giving it an underwriting loss of $6,610. The company said it had won new P&C business and reclaimed business lost the previous year.
Operating income was $149.6m in the first quarter, compared to $190.9m and net income was $127.9m, down from $178.4m. The P&C combined ratio of 100.5% included a 14.3 point impact from the Chilean earthquake and Windstorm Xynthia.
- PC Q1 financial highlights (2009 in brackets)
- Gross premiums written $1,922,313 ($1,878,228)
- Net premiums written $1,596,525 ($1,505,311)
- Net premiums earned $1,263,601 ($1,321,687)
- Underwriting (loss) / income -$6,610 ($103,852)
- Loss ratio 70.6% (59.8%)
- Expense ratio 29.9% (32.3%)
- Combined ratio 100.5% (92.1%)
P&C gross written premiums increased 2.3% from the prior year quarter primarily due to new business growth, including the recapture of certain business lost in 2009, an increase in non-catastrophe premium adjustments and the weakening of the US dollar compared to the first quarter of 2009.
This was partially offset by planned reductions in long term agreements and the impact of our previous withdrawal from two programs.
P&C net premiums written increased by 6.1% from the prior year quarter reflecting the change in gross written premiums as well as reductions in ceded premiums in the current quarter.
P&C net premiums earned comprised $897.0m from the Insurance segment and $366.6m from the Reinsurance segment for the first quarter 2010.
The loss ratio for the quarter was 70.6% compared to 59.8% for the first quarter of 2009. Included in the current quarter loss ratio was prior year favourable development of $86.7m compared to $90.2m in the first quarter of 2009.
The effect of the slight reduction in favourable prior year development was offset by the impact of catastrophes, net of reinsurance and reinstatement premiums, of $181.1m compared to $27.3m in the prior year quarter.
The Chilean Earthquake resulted in the recognition of losses, net of reinsurance and reinstatement premiums, of $159.7m, of which $78.0m was recognised in the Insurance segment and $81.7m was recognised in the
Windstorm Xynthia resulted in the recognition of losses, net of reinsurance and reinstatement premiums, of $21.4m, of which $1.5m was recognised in the Insurance segment and $19.9m was recognised in the Reinsurance segment.
The P&C combined ratio excluding prior year development and the impact of catastrophes for the quarter was 93.1% compared to 96.9% for the first quarter of 2009.
Improvements in the combined ratio on this basis were seen in both the Insurance and Reinsurance segments. The Insurance segment combined ratio on this basis was 96.4% for the quarter compared to 99.1% for the first quarter of 2009, while the Reinsurance segment combined ratio on this basis was 84.8% compared to 92.0% for the first quarter of the prior year.
The improvement in Reinsurance was due primarily to a change in business mix and the impact of premium adjustments. The Insurance combined ratio in the first quarter of 2009 included restructuring charges of $30.9m that contributed 3.4% to the combined ratio.