April 20th, 2009

Bermuda Update: Premium and Market Trends

Posted at 1:00 AM ET

Market Information Department
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Gross and net written premium contracted moderately in 2008, as measured by the Guy Carpenter Bermuda Composite. Insurance premiums written by Bermuda companies expanded, while reinsurance premiums fell. The decline in reinsurance premiums resulted from both the trend for reinsurance rates year-over-year and the fact that many companies pulled back from the market because of it. Overall, gross written premium (GWP) and net written premiums (NWP) decreased by 1 percent from last year.

The Bermuda Composite is comprised of 19 Bermuda-domiciled insurance holding companies, most of which write both primary insurance and reinsurance around the world. U.S. business does tend to dominate the Bermuda company business but growth outside the United States is a key goal for almost all Bermuda based-groups.

Gross Written Premium

GWP for the Bermuda Composite decreased by 1 percent in 2008 to USD41.1 billion. This is consistent with worldwide trends.

composite-gpwnl

Most GWP growth occurred in the primary insurance sector of the Bermuda Composite, as it did last year, with GWP up 8.8 percent from 2007 to 2008. Reinsurance, on the other hand, declined by 6.7 percent year-over-year. The growing primary book was particularly evident among the “Class of 2001″ companies — such as Endurance and Montpelier — but also noticeable in the “Class of 2005″ companies, such as Ariel and Validus, which purchased Lloyd’s managing agents as a way to acquire growth.

nonlife-gpw-change

In general, primary insurance GWP volume continued to increase in 2008, as the Bermuda Composite companies sought diversification and better risk-adjusted returns, particularly in excess and surplus lines. Reinsurance premium growth in 2008 was impacted by increasing cedent retentions (a trend that is reversing itself in 2009) and favorable pricing, particularly in casualty lines, causing many markets to reduce their writings.

Net Written Premium

NWP has grown at approximately the same rate as gross written premiums since 2003. Increasing at a compound annual growth rate (CAGR) of 2.6 percent from 2003 through 2008, GWP slightly outpaced the 2.2 percent NWP growth rate.

bermuda-composite-gpw_npw

The Bermuda Composite’s retention ratio has been relatively flat since 2005. It peaked in 2004, capping a period of rapid growth that began in 2001. A sellers’ market in the early years of this decade likely pushed the retention ratio higher. Currently, shortages of retrocession capacity at a market-clearing price are among the factors impacting the retention of premium. This trend will be more evident in 2009 as retrocession capacity and sidecar facilities remain tight.

bermuda-compretratio

Projections for 2009

Current conditions for the Bermuda Composite companies are likely to remain the norm for 2009. Most Bermuda groups anticipate additional reinsurance rate increases above those of January 1, 2009 renewal rates for the remainder of the year, as demand for reinsurance coverage increases and capacity remains constrained. Retrocession capacity continues to be tight, limiting some lines — such as offshore energy — that reinsurers are willing to write. We also expect the expansion of the primary business to continue.

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