Equator Re business review

Equator Re remains core to the management of the Group’s risk appetite and capital through its role in optimising divisional retentions and managing the Group’s innovative global ceded reinsurance program.

Jim Fiore
Chief Reinsurance Officer & President   •   Equator Re

Gross written
premium 1 (US$M)

1,349

34% from 2015
Net earned
premium 1 (US$M)

468

28% from 2015
Gross written chart, net earned premium

  1. Adjusted for North American Operations LPT transaction.

2016 in review

Overall, 2016 was a very successful year for Equator Re. We delivered strong results while increasing the portfolio of products offered to our divisional customers. Many of these new initiatives facilitated the release of excess divisional capital, thereby assisting the Group in meeting its financial strength and capital flexibility ambitions.

Equator Re delivered a strong underwriting result in 2016, reporting a combined operating ratio of 70.7% 1 representing a significant improvement on 89.0% recorded last year and broadly in line with expectations. While delivering this strong underwriting performance, Equator Re was at the same time able to increase gross written premium by 34% and grow net earned premium by 28%.

During 2016, Equator Re successfully translated the Group Large Risk and Catastrophe (GLRC) aggregate reinsurance program into bespoke divisional covers, providing increased certainty for each division around their expected reinsurance recoveries. Equator Re’s top and bottom line result benefited from the provision of these divisional large risk and catastrophe (DLRC) protections. The result also benefited from novation of the Group Aggregate Risk (GAR) reinsurance program.

Equator Re’s result was also impacted by an increased volume of proportional business, as a result of increased shares in divisional programs and also due to underlying growth in those divisional portfolios that Equator Re proportionally reinsures. This business typically generates a higher (but arguably less volatile) combined operating ratio than Equator Re’s existing excess of loss portfolio and will therefore create upward pressure on the entity’s combined operating ratio. In 2016, this pressure was more than offset by the profitability of the DLRC covers.

During 2016, Equator also reviewed its customer engagement model. Feedback on the recent renewal period indicates that all divisions are happy with the underwriting service provided by our small but professional team.

  1. Adjusted for North American Operations LPT transaction.

Outlook for 2017

Over 90% of Equator Re’s portfolio renews at 1 January and our renewal pricing was in line with the broader market. While the majority of our portfolio renewed similar to expiring policy terms and structure, portfolios without claims activity saw rate changes between zero and negative 10% depending on geography and product line.

Equator Re increased its participation on some marine, crop and reinsurance programs that will provide an additional source of income in 2017. While we do not expect major changes to our portfolio during the remainder of the year, we anticipate a change in the earning pattern in 2017, reflecting the increased proportional treaty component of our business. The volume of net earned proportional business will continue to increase as business already written is earned.

The 2017 outwards reinsurance placement was achieved within budget and expectations. External reinsurance premium spend has reduced in line with expectations without any meaningful increase in the retained risk profile of the Group. The structure is as per plan and provides extensive per risk, catastrophe and aggregate protection to the QBE Group.