Bermuda reinsurers on track for record profits

International

A report, issued immediately after the end of the North Atlantic hurricane season in November by broking group Benfield, further confirms the now widespread expectation that reinsurers are set to report record profits for 2006. The latest Benfield Bermuda Quarterly said that the absence of hurricanes making landfall in the US during the third quarter meant that Bermudian reinsurers net income for the first nine months of 2006 was US$7.1bn compared with a loss of US$1.2bn for the same period in 2005. This was reflected by the improvement in the sector’s aggregate combined ratio from 115.7% last year to 88.2% this year. Not surprisingly, those reinsurers specialising in catastrophe business showed the biggest improvements in combined ratios. Benfield said that Bermudian reinsurers return on equity of 20% for the third quarter of 2006 is the highest on record for the group at the nine month point in any year. Chris Klein from Benfield’s Industry Analysis and Research Team said that Bermudian reinsurers’ capital was augmented by strong earnings. “US$3bn was added to net assets taking total shareholders’ funds at 30 September 2006 to US$53.8bn, 33% more than at 30 September 2005,” he noted. The Benfield report noted that many companies have recouped their losses from last year’s hurricanes and that companies are now faced with the issue of how to manage the excess capital. In addition, the reduced capacity for the US catastrophe related risks is expected to push 1 January 2007 rates up to approximately mid-year 2006 renewal rates. In other markets, however, Benfield observed increasingly competitive market conditions.