Best Comments on Bermuda Insurance/Reinsurance Market

December 16, 2003

A.M. Best has issued a report commenting on the Bermuda insurance and reinsurance market. It notes that the 15 largest companies based on the island generated $28.6 billion in net premiums written and underwriting income of $3 billion as of the end of the third quarter on a U.S. GAAP basis.

“This translates into a year-to-date combined ratio of 87.5 percent, which includes the consolidated underwriting results of U.S. based operating subsidiaries,” said Best. “Underwriting earnings for the 15 companies were complemented by $2.3 billion of net investment income to generate a year-to-date operating ratio of 77.7 percent. Realized capital gains totaled $374 million for the companies.”

The comment noted that the companies had benefited from the “favorable pricing and contract terms in both property and casualty classes gained over the previous year, which is now flowing to the bottom line.” It also said earnings had been helped by “the absence of major catastrophe losses and, unlike their U.S. counterparts, these Bermuda companies have had no need to materially bolster reserves for prior accident years.”

Best pointed out that “XL Capital, which did bolster its reserves relating to its U.S. operations in the third quarter by $184 million pre-tax,” is a notable exception. It also said the strengthening is most likely “the precursor of more to come for the company.” Best added, however, that, “despite this action, XL still reported below breakeven underwriting results on a year-to-date basis. Further, given the diversity of XL’s businesses and current strong earnings momentum, the company is well positioned to absorb a significant reserve charge relative to its U.S. operations, should one be necessary. ”

The comment also recognized the ongoing expansion of “these Bermuda-based companies into select casualty classes of business, where rates continue to increase at levels which A.M. Best believes remain ahead of increases in loss cost.”

“The Bermuda market continues to enjoy strong demand for its products and services as clients seek carriers possessing underwriting capability and strong and unencumbered balance sheets,” the comment concluded.

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