February 7th, 2011

Guy Carpenter Bermuda Reinsurance Composite: 3rd Q 2010

Posted at 1:00 AM ET

flandro_davidDavid Flandro, Global Head of Business Intelligence
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Shareholders’ funds for the Guy Carpenter Bermuda Reinsurance Composite grew by 4.5 percent from year-end 2009 through the third quarter of 2010, largely on the continued recovery of asset values and strong operating results. With overall market conditions failing to have improved materially over the past 18 months, companies have decided to return capital to shareholders - in the form of buybacks, primarily, as well as dividends. Capital returns through the first nine months of 2010 amounted to nearly USD6.3 billion.

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The only significant capital raising during the first nine months of 2010 was the USD1.5 billion issued by Alterra Capital following the Max / Harbor Point merger.

The Bermuda Composite saw net income for the first nine months of 2010 decline by 24 percent relative to the prior-year period, largely due to USD3.2 billion of catastrophe-related losses. These losses (most of them related to the Chilean Earthquake, the Deepwater Horizon oil rig explosion and the New Zealand Earthquake) contributed 14.3 percentage points to the Composite’s combined ratio of 93.8 percent.

The combined ratio of 82.3 percent for the 2009 year benefited from a lack of significant catastrophic activity and reserve releases of USD2.3 billion, which reduced the ratio by 7.8 percentage points. Reserve releases for the first nine months of 2010 amounted to USD2 billion, a nine percentage-point benefit to the combined ratio. Much of the redundancy in 2010 stemmed from short-tailed lines of business.

Gross premiums written grew by a modest 2.7 percent for the first nine months of 2010 versus the prior-year period. The modest top-line growth stemmed from the continued effects of the financial crisis, which led to decreased exposures and lower demand from cedents.

Investment income remained flat in comparison to the prior-year period. Realized capital gains improved in 2010 as asset impairments diminished. The new challenge facing companies appears to be how to reinvest cash and maturing investments in the current low yield environment.

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