2006 kind to Bermuda reinsurers, Fitch says

Bermuda-based reinsurers saw their their 2006 net income soar and their combined operating ratios (COR) plummet and after a relatively mild hurricane season, according to a recent report by Fitch Ratings.
Fitch noted the Bermuda reinsurers tend to derive most of their premium revenue from U.S.-based risks. Given the sharply lower catastrophe-related losses in the U.S. this year, reinsurers generated “very strong profitability” through the first nine months of 2006, Fitch observed.
More specifically, “total net income soared to US$5 billion enough to offset 2005’s total net loss by 1.7 times.”
In addition, the group’s nine-month, 2006 results exceeded the US$4.3 billion of net income it earned in 2003, its recent high-water mark.
“Through the first nine months of 2006, the average of the multiline reinsurers’ combined ratios declined by roughly 30 points from the prior-year period and from full-year 2005,” Fitch reported. “Fitch estimates that 80%90% of this improvement reflects the impact of 2006’s lack of catastrophe losses in comparison to 2005’s record losses.
“The effect of 2006’s lower catastrophe losses is even more pronounced when looking at the change in the average of the property reinsurers’ combined ratios. Through the first nine months of 2006 the average combined ratio of property reinsurers declined by 150 points from the prior-year period and by 163 points from full-year 2005.”
The 2006 results translated into strong returns on average equity (ROAE), Fitch said. “Through the first nine months of 2006, the average ROAE for the multiline reinsurers was 21.1% and the average ROAE for the property reinsurers was 21.7%.”