Chris Klein, Global Head of Business Intelligence

After a challenging 2008, the companies in Guy Carpenter’s Bermuda Composite experienced substantial recovery in their balance sheets as a more positive investment environment and the absence of a major US hurricane drove income higher. The composite’s net income improved to $7.28 billion in the first nine months of 2009, up from a $440 million loss in the same period last year.

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With 2009 coming to a close, this week we’re taking a look at the most popular stories of the year.

Reinsurer Financial and Cat Losses High, Bermuda Hit Most: A tough year for reinsurers is coming to a close. The worldwide financial catastrophe has impaired investment assets and put downward pressure on profits. At the same time, combined ratios were sent higher by an above-average year for catastrophe losses, especially as a result of Hurricane Ike. So, we enter 2009 with capital constrained, shareholders’ funds diminished, and a combined ratio for the Guy Carpenter Global Composite at its second-highest level in five years.

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Lloyd’s 2008 Results — Resilience in a Tough Market: Lloyd’s of London (”Lloyd’s”) competitive position strengthened in 2008, largely because of effective risk management oversight and relatively conservative investment allocation. The capital structure has proved resilient in the face of the worldwide financial catastrophe and financial strength ratings remain strong and stable. As a result, Lloyd’s is well-positioned to benefit from current market dislocation.

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Christopher Klein, Global Head of Business Intelligence
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The Guy Carpenter Bermuda Reinsurance Composite posted an aggregate net loss of USD325 million for the first quarter of 2009. This is down from a net gain of USD558 million (after unrealized gains and losses) for the first quarter of 2008. As with the global and European trends, realized investment losses were the primary reason.

[Chart after the jump]

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The Guy Carpenter Bermuda Reinsurance Composite posted an aggregate net loss of USD325 million for the first quarter of 2009. This is down from a net gain of USD558 million (after unrealized gains and losses) for the first quarter of 2008. As with the global and European trends, realized investment losses were the primary reason.

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Global Reinsurers Shareholders’ Funds up 4.9% (Interim) >>
(Tuesday, May 12, 2009)

Chart: Bermuda Reinsurers Shareholders’ Funds up 4.9% (Interim) >>
(Thursday, May 14, 2009)

Chart: European Reinsurers See Shareholders’ Funds Increase by 5.6% (Interim) >>
(Friday, May 15, 2009)

We will be publishing updates throughout the 1Q2009 reporting season. To receive updates in your inbox, register for e-mail updates.

With 16 of the 20 companies in the Guy Carpenter Bermuda Reinsurance Composite reporting, aggregate shareholders’ funds are up 4.9 percent - from USD47.7 billion to USD49 billion — from full-year 2008 to first quarter 2009. As comprehensive financial statements are published, we will update this analysis (to include unrealized gains and losses).

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Market Information Department
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The Guy Carpenter Bermuda Composite companies persevered in 2008, emerging comparatively unscathed from a turbulent year for financial services companies. In order to understand why, it is necessary to take a five-year view. From 2004 through 2007, the Bermuda (re)insurers managed capital and risk effectively … and were rewarded with healthy balance sheets and the ability to absorb the financial and natural shocks of last year.

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The amount of debt carried by the companies in the Bermuda Composite did not change materially in 2008 Shareholders’ equity, on the other hand, fell 15.7 percent year-over-year. Consequently, the average debt-to-capital ratio grew to 17.6 percent - from 15.6 percent in 2007. The 2008 level is nonetheless fairly conservative.

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Total liabilities dropped 3.7 percent last year, causing the ratio of liabilities to capital and surplus to reach 2.8 — up from 2.4 in 2007. This substantial increase in relative leverage is again the direct result of the decline in shareholders’ equity. Though 2008’s leverage position was much higher than that of 2006 or 2007, it is generally consistent with 2004 and 2005 levels.

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Market Information Department
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The Guy Carpenter Bermuda Composite’s asset allocation did not change substantially from 2007 to 2008. An already conservative investment strategy left little room for more caution. Fixed income securities stayed at 75 percent from 2007 to 2008. Equity allocations were halved year-over-year, dropping from 4 percent of the aggregate portfolio in 2007 to 2 percent last year. Allocations to cash and short-term investments increased from 14 percent to 17 percent. While a “flight to quality” was not possible, a movement in that direction was discernable.

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