Old and new Bermuda players riding wave of success

Bermuda is becoming a “market of choice” for both reinsurance and primary cover as its capacity continues to grow in the wake of September 11, notes a new report by A.M. Best.
In “Bermuda Building Capacity”, the rating agency notes that 11 of the top 35 global reinsurers now call Bermuda home, while primary business is also on the rise. The tax advantages and business-friendly environment of the island have given Bermuda players both new and old an advantage over their U.S. and European counterparts.
In 2003, gross written premiums for the top 15 Bermuda reinsurers (representing 90% of the market) grew 55.2% to US$25.3 billion, A.M. Best notes. “A significant factor contributing to the growth for 2003 is an increased appetite for casualty business in reaction to the decline in property rates and the more protracted hardening in casualty classes.” Compare this to the U.S. reinsurance market where gross written premiums were up just 4% in 2003.
At the same time, the Bermuda companies were able to reduce their combined ratio to 88.7% last year from 91.0% in 2002 U.S. reinsurers posted a combined ratio of 100.7% in 2003. The report notes that the Bermuda market’s improvement would have been even greater had it not been for about US$1.2 billion in reserve additions, led by XL Capital at US$900 million. In fact, incumbents like XL had a tougher time in 2003, posting a combined ratio of 94.3%, compared to 78.8% for the “start-ups”, those reinsurers formed after September 11, 2001.
In Bermuda’s primary market, gross written premiums were up 21.8% in the first half of 2004, to US$23.4 billion, largely the result of the two largest insurers Ace and XL Capital. Improvement in underwriting was slow, however, with the combined ratio dropping less than two points to 85.7% in first-half 2004 compared to 87.5% in first-half 2003.
These results precede the impact of the hurricanes Charley, Frances, and potentially Ivan, which offer the first test of the risk management abilities of the Bermuda players.
Moving forward, A.M. Best says with the coming of the soft market, Bermuda’s players would be prudent to return capital to shareholders, rather than putting additional capital towards inadequately priced business in the chase for top-line growth. Several Bermuda companies have already done this, including Olympus Re, Montpelier and Platinum Re. “This approach reduces the pressure on these companies to speculate on business outside their comfort zone. A.M. Best is cognizant that reduced premium volume can result in a temporary increase in expense ratios, but over the long term it is far easier to correct an expense problem than to correct underwriting losses.”