Singapore Reinsurance

[d.o.g.]

It may be helpful to understand the history of Singapore Re. In 1973, the local insurers all got together and created Singapore Re as a co-operative. It was listed on SGX in 1987. My oldest annual report is for 2001, it shows that at that time over 50% of it was still held by local insurers.

I do not have the annual reports going back to 1973 - those interested can presumably dig them up from the library or ask the company directly.

I do have data going back to 2000 and the numbers are not encouraging as far as underwriting is concerned.

Below is a table of gross insurance premiums and underwriting results from 2000-2011:

(SGD '000)
2000 63,388 1,504
2001 67,584 448
2002 75,645 220
2003 90,497 -1,676
2004 98,106 303
2005 75,309 2,562
2006 81,338 1,818
2007 79,333 2,969
2008 86,190 -1,663
2009 88,121 1,698
2010 102,464 984
2011 108,607 -14,170

Adding up all the gross premiums, for 2000-2011 the company received $1,017m of premiums. In the same period it had a cumulative underwriting loss of 5.0m.

2011 was arguably unusual because of the Thai floods. If we exclude it, for 2000-2010, the company received $908m on which it had a cumulative underwriting profit of $9.2m.

Neither time series looks impressive. I would say that from 2000 onwards their underwriting record suggests that excluding investment profits they were not profitable in any meaningful sense.

Perhaps the ownership by its customers is part of the answer - the customers may prefer to have cheap reinsurance rather than a profitable reinsurer. In fact, until the end of 2004 Singapore Reinsurance had a collective agreement with the motor insurers, where the company had to cover an entire block of policies in exchange for an agreed premium.

(Presumably these policies were unprofitable to retain, and in fact we know from various media articles that motor insurance has been a headache for the insurers here due to extremely high rates of fraud.)

So, cynically speaking, Singapore Re is a dumping ground for the policies that the local insurers feel obliged to offer but are unable to price profitably. Motor insurance is one obvious example. There may be other types of insurance they have to offer as "national service" to stay on good terms with the regulators. I am quite sure they will not bother to reinsure the highly profitable policies like residential fire, consumer travel, mortgage insurance etc. UOI's fire insurance for example is obscenely profitable. No way they would cede that business to any reinsurer.

Should Singapore Re trade at book value?

Considering that its policies probably contain a large proportion of poor-quality policies (underscored by its poor underwriting record over the last decade), with little prospect of improving pricing against its customer-owners, I am not sure.

To play Devil's Advocate, one might then ask:

If Singapore Re is such a poor business, why does Fairfax own 27% of it?

Fairfax is run by Prem Watsa, widely regarded as Canada's Warren Buffett. Prem has generated tremendous value for Fairfax shareholders since inception in 1985 and undoubtedly knows what he is doing.

One possible answer is that Singapore Re is a relatively small investment for Fairfax, and so it might not be getting Prem's full attention. At 31 Dec 2011, Fairfax Financial's investment portfolio was USD 23.5bn. The stake in Singapore Re (165m shares at SGD 0.245) is worth SGD 40m or USD 32m.

So Singapore Re is about 0.14% of Fairfax's investment portfolio. I do not know if Prem has spent a meaningful amount of time looking at it.