Bermuda reinsurers show solid profits in 2006

Supply shortages, low catastrophe losses and buoyant investment income resulted in record first-half profits of US$4.5 billion for Bermuda’s reinsurers, according to the latest Benfield Bermuda Quarterly report.
Modest catastrophe losses held the average combined ratio to 89.2%, little changed from the 89.3% for the first six months of 2005, Benfield said.
“Reserve strengthening of over US $600 million for hurricanes Katrina, Rita and Wilma was more than offset by the release of reserves for other classes of business,” Benfield said.
Average annualized return on equity was 18.6% compared to 17.3% for the same period in 2005.
According to the 19-page report, balance sheets were restored to their pre-Katrina levels of US$51 billion.
“Nevertheless, capacity was tight as the market sought, and in some instances struggled, to provide cover for U.S. (and in particular Florida) mid-year renewals,” Benfield said in a press release. “Reinsurers that held back capacity in January 2006 were rewarded with much higher prices for marine, energy and U.S. peak zone catastrophe risks.”
Short-notice, tactical redeployment of capacity was evident as companies exploited the sharp increases in US catastrophe, energy and marine prices, according to Chris Klein of Benfield’s industry analysis and research team. “Several new sidecars took to the road in Bermuda, spurred on by the acute shortage of capacity. Many of the Bermuda reinsurers expect the hard market to persist well into 2007.”