Bermuda certainly deserves a spot in this year’s top-10 story list, no matter if you’re looking back at the fact that players living large on that island paradise again enjoyed record earnings, or because of the storm clouds on the horizon threatening its future.
Starting off on a positive note, as NU’s Susanne Sclafane reported last month, “a second straight year of benign loss activity contributing to a second year of record earnings” left Bermuda insurers and reinsurers, whether “old-timers to relative toddlers,” facing an “enviable problem—an embarrassment of riches.”
Ms. Sclafane noted that “in total, 17 companies tracked by NU reported overall net income jumps of nearly 6 percent in third-quarter 2007, and 21 percent for the first nine months, while total shareholders equity for the group rose more than 14 percent over…year-end 2006.”
This came on top of awesome results for 2006, with reinsurance broker Benfield Group reporting that Bermuda reinsurers it examined grew capital 24 percent to a record $65 billion. The firm’s “Bermuda Quarterly” report noted that the island’s reinsurers saw capital double since 2002.
If that’s not impressive enough, how about the fact that by Benfield’s calculations revenues for 2006 wiped out 2005’s catastrophe losses?
“These companies have better capitalization than they’ve ever had, and their profitability is fantastic with no [major] catastrophes this year,” Alan Murray, senior credit officer of Moody’s Investors Service, told NU. In other words, Bermuda carriers are sitting pretty, right?
Not necessarily. The flip side of this shiny coin is a host of challenges and threats to the island’s prosperity that emerged over the course of the year.
The most obvious problem is that the commercial market is softening in a hurry—with even some catastrophe-exposed property risks seeing rates in decline after two or three years of stiff premium hikes.
Adding insult to injury was legislation passed in Florida just after the start of the year that provides, in effect, state-backed reinsurance at below-market prices for property-catastrophe coverage—the sweet spot for many Bermuda carriers.
But early on, analysts dismissed that threat, with Ms. Sclafane reporting that rather than a “death blow,” the Florida development was seen in Bermuda as more of a “curve ball that the market can still hit out of the park,” perhaps by expanding its focus to Asia and Latin America, as well as additional U.S. surplus lines.