Matthew Day, Senior Vice President
Contact
Investment Performance
Although the 2011 investment return of 1.9 percent was weak relative to previous years, Lloyd’s conservative investment strategy has partially insulated it from some of the more damaging volatility seen across a number of markets since the onset of the financial crisis in 2008 and continuing through 2011.
Guy Carpenter Bermuda Reinsurance Composite, Combined Ratio, Year-End 2010
Source: Guy Carpenter & Company, LLC
Click here to view additional material in GC Capital Ideas’ Chart Room >>
Guy Carpenter Bermuda Reinsurance Composite, Shareholders’ Funds, Year-End 2010
Source: Guy Carpenter & Company, LLC
Click here to view additional material in GC Capital Ideas’ Chart Room >>
Guy Carpenter Bermuda Reinsurance Composite, Return on Revenue, Year-End 2010
Source: Guy Carpenter & Company, LLC
Click here to view additional material in GC Capital Ideas’ Chart Room >>
Guy Carpenter Bermuda Reinsurance Composite, Return on Equity, Year-End 2010
Source: Guy Carpenter & Company, LLC
Click here to view additional material in GC Capital Ideas’ Chart Room >>
Guy Carpenter Bermuda Reinsurance Composite, Source of Earnings, Year-End 2010
Source: Guy Carpenter & Company, LLC
Click here to view additional material in GC Capital Ideas’ Chart Room >>
Historically, one of the “big cats” has been sector under-reserving, which served as the backdrop for the last hard market. Over the last four years, reserve releases have featured prominently in the reinsurance sector and have continued to do so up until the third quarter of 2010. The chart below shows the contribution to reserve releases on the Guy Carpenter Bermuda Reinsurance Composite combined ratios from 2005. It is notable that the benefit from reserve releases has ticked up in the first nine months of 2010 by one full percentage point, to 8.8 points on the loss ratio. This has occurred during a year when many projected reserve releases would diminish.
David Flandro, Global Head of Business Intelligence
Contact
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.
Given low valuations, low yields, macroeconomic instability, inflationary pressures and lower pricing, it is not unreasonable to argue that the current operating environment is among the most challenging in living memory. The question most frequently posed in the reinsurance sector currently is: What will it take to turn the market? Below we discuss several potential scenarios that could expedite the turn. However, it is most likely that a combination of events will ultimately create the inflection point from which the sector will again enter a hard market.
Reinsurers tend to experience broad profit fluctuations. This is evidenced by the data in the chart below, which shows the average historical return on common equity (RoCE) of the Guy Carpenter Bermuda Reinsurance Composite group of companies. Note the recent large losses incurred in years 2001, 2005, and 2008. Although these were followed by periods of above-normal profitability, returns look likely to be lower in 2010 and could deteriorate quickly if losses occur.
