For the past 10 years, most Bermuda companies have outperformed the Standard & Poor’s (S&P) 500 in generating shareholder value. The Guy Carpenter Bermuda Reinsurance Composite has shown considerable book value and dividend growth. This financial performance has been driven substantially by Bermuda’s low tax rate, experienced executives and friendly regulatory regime.

Bermuda faces the challenges of prosperity in 2008. The good fortune of low catastrophe losses in 2006 and 2007 has caused balance sheets to swell, but the opportunities to earn the outsized returns desired by investors have nearly vanished. For the coming year, it is almost inevitable that the profit rate of Bermudian companies will decline.

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Reinsurance renewals at April 1, 2008, sent mixed signals to the global market. Cedents pushed hard for rate reductions in Asia. Reinsurers stood firm, though, as rates in general are already close to technical levels. The majority of rate decreases, therefore, were single-digit. U.S. cedents pushed as well. While reinsurers resisted, competitive forces prevailed, and rate reductions were substantial. Decreases can be achieved, it seems, if rates are above technical levels. Insufficient rate levels and poor loss histories led to reinsurer discipline.

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