Best Issues Special Bermuda Report

May 30, 2007

A.M Best Co. has issued a special report on the Bermuda insurance market, which, among other analyses, compares the disastrous 2005 hurricane season with the startlingly benign one in 2006.

Between the two Best notes that the “Bermuda market reported a very healthy 2006 combined ratio of 83.7, compared with a catastrophic combined ratio of 119.4 for 2005.” The main driver, other than the calm hurricane season, was the “robust level of price improvement attained in 2006 relative to U.S. catastrophe-exposed business.”

2006 was definitely a good year, as “underwriting activities alone generated $6.9 billion of earnings,” said Best. Earnings from investments meanwhile reached $7.0 billion, and the “sector produced a composite return on equity of 19.3 percent.” Combined net income – after taxes and other miscellaneous expenses, “totaled $11.6 billion, which net of $1.4 billion in shareholders dividends was added to the coffers of Bermuda’s leading reinsurance and insurance organizations.”

ACE Limited was the leading earner, followed by XL Capital, Everest Re and Partner Re. Their P/C combined ratio was the lowest in the sector, “indicating higher underwriting margins for the year.” However, Best warned that “for property-oriented companies, one year’s underwriting gain can be a shortsighted view of success, as gains can be wiped out overnight.”

Best’s report confirms that the hard market cycle has definitely turned. “As a result, the key to successful navigation in 2007 will be a clear focus on capital management and underwriting discipline,” said Best. The rating agency also indicated that it believe the competitive pressures will compel the 2005 start-ups “to seek alternative business opportunities in an attempt to fully utilize the capital raised.”

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