They seem to have gotten better over the years. It's possible that hitting their long term average return may be easier now than when they first started. Their 100 and 250 year projected maximum losses have come down nicely in recent years. It's possible to speculate that their average return going forward will be higher than in the past, especially in view of Solvency II and the prospect of a hard market in the not too distant future. An average coupon of 20% on about $7.90 BV/SH is still better than anything else I see now, even with LRE's total return price up 50%+ in the last 12 months.
alas, it looks as if the new solvenyII rules will be watered down due to pressure from- who else- industry players. which is disappointing from the viewpoint of stronger, better managed insurers like lre who were counting on the weaker capital positions of insureres in the aggregate to help harden rates to the benefit of those less capital constrained.
makes lre a just little harder hold at 1.5x book value?
http://online.wsj.com/article/SB10001424052970204059804577229502818976934.htmlCrisis? What crisis? Ultralow interest rates and the prospect of sovereign defaults ought to be toxic for insurers' balance sheets. Yet most European insurers report robust capital positions. France's AXA and Spain's Mapfre even improved their solvency ratios in 2011. New rules designed to better judge the risks that insurers take had threatened to leave the industry with a €37 billion ($48.6 billion) capital shortfall. Now, they have been so watered down that this gap has disappeared. Investors should question why.
Current European solvency rules are inadequate. Capital requirements are set as a proportion of reserves or premiums written. Different national rules make comparing insurers' solvency hard. Outside the Netherlands and the U.K., assets aren't always marked to market. In France, insurers can include unrealized gains on bonds but omit unrealized losses. In most countries, the value of insurers' liabilities—the amount they must pay out for future claims—can be fixed when they were written. In Germany, Munich Re's capital is inflated by rules that mark its assets, but not its liabilities, to market.
Regulators' answer to this is "Solvency II," which will apply from 2014. The rules will require insurers to mark both assets and liabilities to market and introduce risk-based capital weightings. But their effect depends largely on the discount rate used to value liabilities. Initially, regulators proposed using the most conservative "risk-free" rate available, the interbank swap rate. But they have since rowed back from this in two key ways.
First, they bowed to pressure from U.K. and German life insurers, which argued that using such a low-discount rate would disproportionately harm their large annuity-style business. These businesses may now be allowed to use a higher discount rate for policies that can't be cashed in by customers and where the insurer is less vulnerable to market risks.
The second fudge is designed to protect insurers in countries like Italy and Spain, where bond spreads have widened from the swap curve, meaning their assets are worth less but the value of their liabilities is rising. Insurers may now be allowed to include a "countercyclical premium," or higher discount rate at times of market stress. Without this, up to 30% of Europe's insurers would need to start rebuilding capital, notes J.P. Morgan.
Some compromise was inevitable. The new rules risked causing wild swings in solvency based on market moves, making it hard to price products and potentially triggering unnecessary capital increases. Unlike banks, insurers can rebuild capital by stopping writing new business and collecting premiums. But the rules have moved a long way from the market-based view of risks originally intended. And a solvency regime that ignores all European sovereign credit risk looks increasingly unrealistic. Investors could end up none the wiser
