risk assessments and proper prices, for the good of the industry, PartnerRe president Herbert Haag says in is company's annual report. Ahmed ElAmin reports PartnerRe Ltd. president and chief executive officer Herbert Haag has used his statement in the company's annual report to deliver a stern lecture to industry executives for a lack of discipline in the global reinsurance market.

"Virtually every market participant acknowledges today's unacceptable level of reinsurance pricing but, going into 1999, no corrective action was taken,'' he stated in the report released this week.

"If capital funds are destroyed -- and reinsurers are weakened -- as a consequence of today's insufficient pricing, the stage will be set for a structural change, both in insurance and reinsurance. Many interested market observers are waiting on the sidelines. It is crucial that insurers and reinsurers return to realistic risk assessments and proper prices.'' Mr. Haag warns of a global shakeout in the industry for those who don't return to a more disciplined management of their capital. Of course, he uses the criticism to put in a good word for Bermuda-based PartnerRe by pointing out to shareholders that the company doesn't engage in such behaviour.

"If too much capital is responsible for the uneconomical use of reinsurance capacity, it needs to be curtailed,'' he stated. "There are numerous ways to manage capital funds efficiently -- to destroy them through over-aggressive market posturing does not seem an intelligent way.'' PartnerRe net income fell 1.7 percent to $266.3 million in 1998 compared to the previous year. Operating earnings were $230.3 million, down 7.9 percent compared to the previous year.

Net premiums written reached $687 million, compared to $427.8 million in 1997, a gain which reflects the first full year in which revenues from SAFR -- which was acquired in 1997 -- were included. SAFR's business is only included in the company's results for the second half of 1997.

Reinsurance losses and loss expenses were $396.9 million or 57.9 percent of premiums earned compared to 43.5 percent in 1997, when losses added up to $207.3.

Mr. Haag said the company's results were affected by increased loss activity during what turned out to be the third worst year for insured US catastrophe losses, and also reflected the business written by SAFR.

The 1998 combined ratio was 86.5 percent -- one of the best among multi-line reinsurers worldwide, Mr. Haag said.

The annual report also reveals PartnerRe's transformation to a global reinsurer from a mono-line excess of loss catastrophe specialist.

Prior to the SAFR acquisition, PartnerRe had 57 percent of its business in North America, 21 percent in Asia, Australia, and New Zealand, 17 percent in Europe, and the rest in Latin America, the Caribbean and Africa. SAFR is based in France, giving the company a strong presence in Europe.

By the end of 1998 PartnerRe had reduced its US portfolio to 36 percent and increased its European business to 48 percent of its book. Asia, Australia and New Zealand was reduced to 13 percent.

In 1996 the company's book was entirely in the catastrophe reinsurance business. In 1998 PartnerRe's main lines business was 36 percent in property, 22 percent in catastrophe, 18 percent in automobile, and seven percent in the life markets. The book of business for this year has undergone a further transformation with the completion of the purchase of the reinsurance operations of the Winterthur Group.

PartnerRe Ltd. bought the active reinsurance arm of Winterthur Insurance Co.

for $771.2 million in cash from the Credit Suisse Group (CS) last year.

Since July 1997 PartnerRe has grown to 630 employees in 12 locations from 35 in two offices.

Winterthur Re's net premiums written were about $860 million in 1998, and included about $290 million of life business.

"Accordingly, life business will become a more significant part of the company's portfolio beginning in 1999,'' PartnerRe stated.

Losses in the catastrophe market were responsible for 12 percentage points in the company's loss ratio in 1998 compared to 3.6 percentage points in 1997.

Mr. Haag noted that PartnerRe was able to maintain profitability in the catastrophe account even though the book of business took hits from two large events.

Reinsurers accused of `lack of discipline' PartnerRe paid out $32 million in claims in the January ice storms in eastern Canada. Hurricane Georges, which hit the Caribbean basin and the US in September accounted for another $18 million in losses.

Net catastrophe premiums written decreased in 1998 to $159.8 million from $192.9 million due to falling prices in the market. PartnerRe concentrated on reducing exposure to attritional losses by shifting capacity to higher layers of coverage.

In the property market PartnerRe wrote net premiums of $232.2 million. The book was also hit by the ice storms in Canada and Hurricane Georges. Large fire losses in Europe and riots in Indonesia also affected PartnerRe.

"Primary property markets remained soft in 1998, with industrial rates on occasion becoming unsupportable,'' the company stated. "However, 1999 renewals have shown some early and fragile signs of a firming market, which may eventually develop into an upturn.'' In the automobile market PartnerRe revenue was affected by a downward pressure in Europe. Results were affected by a hailstorm in the Netherlands in June.

Net premiums written in automobile were $137.1 million in 1998, compared to $54.8 million.

PartnerRe's investment portfolio was worth $5.4 billion at December 31, 1998 having achieved a 10.1 total return for the year. Investments accounted $169.4 million of the company's 1998 revenues.

At December 31, PartnerRe had total assets of $7.8 billion, up from $3.6 billion a year earlier. Shareholders' equity was $2.1 billion. Diluted book value per common share increased to $33.53 from $29.57 a year earlier.

Stern lecture: PartnerRe president and CEO Herbert Haag