General Re Corporation Business Information, Profile, and History
695 East Main Street
Stamford, Connecticut 06904-2351
At General Re, our aim is to be the first choice provider of risk assessment and risk transfer solutions for our clients. We intend to anticipate and meet or exceed the needs and expectations of our clients worldwide. As we strive to be the best we can be, we are committed to an attitude of Continuous and Never-Ending Improvement. To us, being the "best" means being the most professional and consistently profitable company in our business. As we see it, being the best is the only way we can really serve the long-term interests of all our constituents&mdash⁄areowners, clients, associates, and communities.
History of General Re Corporation
General Re Corporation is a holding company for General Reinsurance Corporation and National Reinsurance Corporation, which together comprise the largest U.S.-based property/casualty reinsurance group. Reinsurance is a means by which an insurance company is able to dilute its total liability by ceding a percentage of its policies to another insurer, who is therefore said to provide "reinsurance." Such a practice was frowned upon in the early history of insurance as little more than gambling, but with the growth of insurance coverage in the 20th century, reinsurance has become a widespread, profitable, and even prestigious business. General Re also holds a 78 percent stake in the oldest reinsurance company in the world, Cologne Re, which is active in nearly 150 countries; the combined operations of General Re and Cologne Re rank as the world's third largest reinsurance business. Among the company's other operations are Herbert Clough Inc., provider of reinsurance brokerage services; United States Aviation Underwriters, Inc., a manager of aviation insurance risks; and Ardent Risk Services, Inc., a business development consultant and reinsurance intermediary.
Formed Through 1921 Merger
General Casualty and Surety Reinsurance Corporation was formed by the 1921 merger of Norwegian Globe and Norwegian Assurance, two insurance companies under the direction of Robert Iberstein. The new company, with Iberstein as president, began operations in New York with a capital fund of $800,000. As reinsurance was not yet widely practiced in the United States, General Casualty and Surety had few domestic competitors, and even overseas only a handful of European firms were actively pursuing reinsurance clients. In 1923 Iberstein and his board of directors resigned and James White, an engineer of some renown and a business consultant, took over the company's leadership. White then renamed the company General Reinsurance Corporation.
An excellent national economy allowed General Reinsurance to expand rapidly until the Great Depression struck in 1929. President White assembled a board of directors that included Edgar H. Boles, a lawyer formerly associated with the Lehigh Railroad. In 1930 Boles became president of General Reinsurance. The company had assets of approximately $12.3 million at the time. As the Depression lengthened, General Reinsurance not only struggled with the generally poor economic conditions but also sustained a number of heavy losses as an insurer. The experience and sagacity of Edgar Boles is widely credited with saving the company.
During these early years, General Reinsurance concentrated primarily on fire and casualty reinsurance, forming agreements with its primary insurance customers that called for General Reinsurance to assume a fixed proportion of the primary insurer's total liability. An alternative type of reinsurance, known as facultative reinsurance and often used for large, well-defined risks, requires that the two insurers negotiate a separate premium for each new policy written. Because it was nearly alone in the domestic U.S. reinsurance market, General Reinsurance early discovered that it could charge a healthy fee for its services without losing significant amounts of business. The company's assets rose steadily, and despite the setbacks of the 1930s, General Reinsurance built a reputation as a solid, blue-chip firm.
Merged with Mellon Indemnity in 1945
Increased international competition during and immediately after World War II forced General Reinsurance to seek additional sources of capital. In 1945 the company found a suitable partner in Mellon Indemnity Corporation, a somewhat smaller insurance company owned by the Mellon family of Pittsburgh, Pennsylvania. Mellon Indemnity actually wrote little insurance, serving mainly as an investment vehicle for the Mellons, but its strong balance sheet was attractive to General Reinsurance. In November 1945 a stock swap merged the two companies, which together boasted $38 million in assets and wrote $18 million worth of premiums in the following year. Edgar Boles remained as president of the new company, 40 percent of which was owned by the Mellon family.
In 1946 Edgar Boles retired after 16 years as the head of General Reinsurance. His replacement, Edward Lowry, served from 1950 to 1960, and played an important role in formulating General Reinsurance's business philosophy for the coming decades. Under Lowry, the board decided that General Reinsurance could best make use of its leadership position and strong assets by adopting a conservative posture. General Reinsurance would accept only those policies that met its standards for safety and premium level, thereby assuring itself of a net profit from its underwriting business alone. In addition, General Reinsurance decided to make only the most prudent investments, chiefly in bonds; to maintain unusually large reserves against the threat of multiple catastrophes; and to pay out a dividend smaller than the industry norm. Bolstered by the Mellons' financial security and golden name, General Reinsurance set out to become not only the largest and most profitable of U.S. reinsurers but also the industry's most distinguished player.
This policy succeeded in every respect. Under the leadership of James Cathcart and Robert Braddock, two members of the management team put together by Edward Lowry, General Reinsurance enjoyed several decades of remarkable financial health. The firm stuck to its high-priced premiums, demanding and getting the kind of fees that allowed it to earn a consistent profit on its underwriting business. A standard measure of underwriting success is the "combined ratio," which matches operating losses and expenses against annual underwriting income. If that figure comes out about even--expressed as 100 percent--the company's underwriting division is breaking even, and the firm can anticipate earning good money on its extensive investments. At General Reinsurance, the combined ratio hovered at a low 97 percent during the 30 years following the 1946 merger with Mellon--a good indication that General Reinsurance was not only highly profitable but also building unusually large reserves against potential future losses.
Recorded as assets, these reserves increased over the years. From the $38 million recorded in 1946, General Reinsurance's assets rose to approximately $175 million in 1960 and to four times that amount a decade later. Part of this capital was used to open branches in Canada and Brazil, as well as an additional half-dozen locations in the United States, but most of General Reinsurance's growing wealth was simply reinvested in secure, low-tax bonds. This expanding portfolio supplied the lion's share of General Reinsurance's profit, which showed an enviable 16 percent annual compounded growth rate from 1959 to 1969. Such sustained profitability, in turn, allowed the company to further strengthen its asset base and continue its tough premium pricing.
Faced Increased Competition in the 1970s and 1980s
As profit growth increased at an even greater rate in the early 1970s, General Reinsurance's extraordinary record began to attract attention. The Reinsurance business looked more appealing when it was accompanied by a 22 percent annual increase in profit, as General Reinsurance's was during the decade of the 1970s, and the once exclusive club of reinsurers was soon crowded with new competitors. Prudential and Sears' Allstate formed reinsurance divisions, followed by newcomers to the entire insurance field like Ford, Armco, and Gulf Oil. The many large companies that had recently formed "captive" insurance units to handle their own risk management were also soon chasing the apparently easy money in reinsurance.
General Reinsurance responded to the suddenly competitive market conditions by doing nothing. It chose not to compete at a depressed premium level and issued a number of dire warnings about the danger of doing business with reinsurance firms lacking the experience and capital reserves sufficient to meet the next nationwide catastrophe. True to its philosophy, General Reinsurance accepted only those policies for which it could charge high premiums, and as a result its underwriting premiums dropped in 1979 for the first time in corporate history. Chairman Harold Hudson, Jr., was also faced with the departure of a number of key executives and a growing perception in the industry that General Reinsurance's patrician style of reinsurance was out-of-date. In response, Hudson initiated a few changes, most notably the 1980 organization of General Re Corporation, which acquired General Reinsurance Corporation and its subsidiaries. The formation of the holding company followed General Reinsurance's acquisition of its first primary insurance subsidiary, and both moves signaled a new competitiveness at General Re. The company, however, reiterated its conviction that reinsurance was no place for fast-moving profit hounds and that survival was the real measure of success in a business that in a sense depends on disaster.
As events unfolded, it appeared that Hudson and his conservative colleagues at General Re were correct. After enduring a few nervous years as a probable takeover target and a brief mid-1980s profit dip, General Re turned around its underwriting slump and continued its traditionally steady growth. Despite the onslaught of competitors, General Re remained the dominant factor in U.S. reinsurance, writing some 10 percent of all U.S. polices, while its field of challengers thinned after only a few years. As the company always maintained, reinsurance is a business for those with deep pockets, and General Re's portfolio of $8.8 billion in invested insurance assets in 1989 amply met even its conservative definition of adequate reserves.
More Aggressive Stance in the 1990s
The 1990s brought a host of new challenges to reinsurance companies, including ever fiercer competition, a rapidly changing financial services industry, and globalization. In response, General Re took a more aggressive posture to protect its leading position, seeking out acquisitions and establishing new lines of business.
With lines between traditional reinsurance, financial derivatives, and securities blurring, General Re in 1990 took the preemptive action of establishing General Re Financial Products Corporation, a global derivative products dealer offering interest rate, currency, equity swaps and options, and other derivative products to help clients manage financial risks. Two other new subsidiaries were formed in the 1990s to expand General Re's range of services. In 1993 General Re Asset Management was established to provide investment management and advisory services to the insurance and healthcare industries (this unit was later known as General Re-New England Asset Management, Inc.). In late 1997 General Re formed Ardent Risk Services, Inc., a business development consulting firm and reinsurance intermediary.
In the early 1990s only about 10 percent of General Re's premiums came from overseas. General Re sought to join the globalization trend in financial services, although its first major attempt failed. The company in April 1991 agreed in principle to purchase an 80 percent stake in Royal Reinsurance Co. Ltd. of the United Kingdom, but a few months later the deal fell apart. Over the next few years the company made two small international acquisitions and opened offices or operations in Cologne, Milan, Singapore, Buenos Aires, and Copenhagen. But it was in late 1994 that General Re seriously stepped up its international presence through the purchase of a 75 percent stake in Germany-based Kölnische Rückversicherungs-Gesellschaft AG (Cologne Re), the world's oldest reinsurance company, having been founded in 1846. Cologne Re handled property-casualty, life/health, and financial reinsurance in nearly 150 countries through 37 offices in 27 countries. Combining General Re's number four position in reinsurance worldwide with Cologne Re's number five position created the third largest reinsurer in the world. About 45 percent of General Re's premiums now came from outside the United States.
General Re also used an acquisition to boost its domestic operations, when it bought National Reinsurance Corporation for about $940 million in October 1996. National Re was the 17th largest U.S. reinsurer with net premiums booked of $334.4 million in 1995 (General Re booked $2.96 billion in North American premiums that year). The addition of National Re, which was also headquartered in Stamford, Connecticut, was considered to be particularly strategic in that the acquired firm was likewise a conservatively run reinsurer with one of the lowest combined ratios in the industry. National Re's clients, however, were mainly regional and small, niches that General Re had not been able to fully penetrate.
Overall, General Re fared well in the challenging years of the 1990s, despite some difficulties. The entire property-casualty industry was hurt by record disasters in 1992, leading General Re to post a combined ratio of 108.4. For the overall ten-year period ending in 1997, however, the company posted an average combined ratio for its North American operations of 100.7, which, while not the best results in company history, was much better than its competitors' during the same period. Net premiums written of $6.55 billion and invested insurance assets of $24.58 billion in 1997 provided additional support for the strength of America's number one reinsurer.
Principal Subsidiaries: General Reinsurance Corporation; Kölnische Rückversicherungs-Gesellschaft AG (Cologne Re) (Germany; 78%); General Star Management Company; Herbert Clough, Inc.; Genesis Underwriting Management Company; Ardent Risk Services, Inc.; General Re Financial Products Corporation; General Re-New England Asset Management, Inc.; United States Aviation Underwriters, Inc.
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