Bermuda market “stirred, not shaken” by hurricanes: Benfield

Despite the unprecedented hurricane losses of 2004, the Bermuda market managed strong returns last year, according to the latest “Bermuda Quarterly” issued by broker Benfield Group.
Analyzing results of the top Bermuda underwriters, Benfield says the group eked out a respectable 13.3% return on equity for 2004, although this was a decline on the 19.1% recorded in 2003. Bermuda reinsurers were buffered from the massive storms losses by high retentions and the bulk of losses falling to the primary market.
Net income for the group dropped 3% to US$5.7 billion in 2004, while the average combined ratio rose to 96.4% from 90.7%. Only three companies in the group reported combined ratios in excess of 100%, and only one company (Quanta) reported a net loss, Benfield notes.
Investment earnings were strong, while companies generally saw favorable development of prior year loss reserves, and aggregate shareholders’ equity rose 14% to US$45 billion while the average solvency ratio remained at around 103%. Strong balancesheets allowed companies to return capital to shareholders, while many also replaced equity with cheaper debt. At the same time, Benfield comments, “the exodus of original post-9/11 investors continued during 2004 suggesting they have called the peak of the current cycle”.
Despite a 14% growth in gross premiums in 2004, the rolling 12-month premium growth rate dropped to 1% by the fourth quarter of 2004, in Benfield’s words “providing further evidence of the downturn in premium growth”. With increased competition, 2005 renewals were eyed carefully, and the broker notes that many companies seemed prepared to walk away from under-priced business, suggesting growth prospects are “limited” in the near term.