General Re Corporation

Financial Centre
695 East Main Street
Stamford, Connecticut 06904
U.S.A.
(203) 328-5000
Fax: (203) 328-6423

Public Company
Incorporated: 1921 as General Casualty and Surety Reinsurance Corporation
Employees: 2,300
Assets: $10.39 billion
Stock Exchange: New York

General Re Corporation is the parent company of the largest reinsurer in the United States and third-largest in the world, a position it has maintained since its reformation at the end of World War II. 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 handles roughly 10,000 active claims every year, many of them routine disbursements made in conjunction with its primary insuring partners, others in response to extraordinary disasters like the 1989 San Francisco earthquake.

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 than renamed the company General Reinsurance Corporation.

An excellent national economy allowed General Reinsuranc 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 treaties 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 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. Its assets rose steadily, and despite the setbacks of the 1930s, General Reinsurance built a reputation as a solid, “blue chip” firm.

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 of 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% 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 of 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’s 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 aristocrat.

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 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 so-called combined ratio, which matches operating losses and expenses against annual underwriting income. If those figure come out about even—or, as it is expressed, 100%—the company’s underwriting division is at least not running at a loss, and the firm can anticipate earning good money on its extensive investments; but at General Reinsurance, the combined ratio hovered around 97% during the 30 years following its 1946 merger with Mellon—an apparently slight advantage, but a good indication that General Reinsurance was not only highly profitable but also building unusually large reserves against potential future losses.

In the form of 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 four times that amount a decade later. Part of these riches were 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% 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.

As profit growth increased even faster in the early 1970s, General Reinsurance’s extraordinary record began to attract attention. Reinsurance looked more appealing when it was accompanied by a 22% 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’s 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 difficult market conditions by doing nothing. It chose not to compete at the depressed premium level and issued a number of dark 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 top dollar, 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 conpetitiveness at General Re, although the company 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.

It appears that Hudson and his conservative colleagues at General Re were correct—or at least they have not been proven wrong. 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 remains the dominant factor in U.S. reinsurance, writing some 10% of all U.S. polices, while its field of challengers thinned after only a few years. As the company has always maintained, reinsurance is a business for those with deep pockets, and General Re’s current portfolio of $8.8 billion in invested assets in 1989 amply meets even its conservative definition of adequate reserves. Furthermore, by 1990 the industry shake-out was not yet finished, as the years immediately following a major disaster have usually been hard on the reinsurance business; 1989 was a very bad year for disasters in the United States, and that should be very good for General Re.

Principal Subsidiaries

General Reinsurance Corporation; North Star Reinsurance Corporation; General Star Management Company; General Star National Insurance Company; General Star Indemnity Company; United States Aviation Underwriters, Inc.; Herbert Clough, Inc.; General Re Services Corporation; Genesis Underwriting Management Company; Genesis Indemnity Insurance Company; Genesis Insurance Company; General Re Financial Products Corporation; General Reinsurance Limited (U.K.); General Reinsurance Corporation (Europe) (Switzerland); Reinsurance Company of Australasia Limited (Australia); General Re Correduria de Reaseguros, S.A. (Spain); General Re Compania de Reaseguros, S.A. (Argentina); General Reinsurance Corporation (Japan).

Further Reading

Rumely, Paul, The History of General Re: 65 Years in Reinsurance. Stamford, Connecticut, General Re Corporation, 1986.

—Jonathan Martin