2010-Us_insurance_16th Annual Bermuda Insurance Survey_210510
Transcript of 2010-Us_insurance_16th Annual Bermuda Insurance Survey_210510
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Source: Bermudian Business /Deloitte.
BY CAPITAL AND SURPLUS ($ 000s)
BY TOTAL ASSETS ($ 000s)
BY PREMIUMS EARNED ($ 000s)
BY NET INCOME ($ 000s)
With
Analysis by
XL Capital Ltd
PartnerRe Ltd.
AXIS Capital Holdings Limited
Arch Capital Group Ltd.
Validus Holdings, Ltd.
RenaissanceRe Holdings Ltd.
Aspen Insurance Holdings Limited
Catlin Group Limited
Allied World Assurance Company Holdings, Ltd
Endurance Specialty Holdings Ltd.
9,615,090
7,645,727
5,500,244
4,323,349
4,031,120
3,840,786
3,305,000
3,278,051
3,213,295
2,787,283
XL Capital Ltd
PartnerRe Ltd.
Arch Capital Group Ltd.
AXIS Capital Holdings Limited
Catlin Group Limited
Allied World Assurance Company Holdings, Ltd
Aspen Insurance Holdings Limited
RenaissanceRe Holdings Ltd.
Endurance Specialty Holdings Ltd.
Max Capital Group Ltd.
45,579,675
23,732,544
15,375,790
15,306,524
11,681,740
9,653,153
8,257,000
7,801,041
7,666,694
7,339,746
XL Capital Ltd
PartnerRe Ltd.
Catlin Group Limited
Arch Capital Group Ltd.
AXIS Capital Holdings Limited
Aspen Insurance Holdings Limited
Hiscox Ltd.
Everest Reinsurance (Bermuda), Ltd.
Endurance Specialty Holdings Ltd.
Validus Holdings, Ltd.
5,151,739
4,119,825
2,917,862
2,842,745
2,791,764
1,823,000
1,724,020
1,715,254
1,633,192
1,449,577
PartnerRe Ltd.
Oil Insurance Limited
Validus Holdings, Ltd.
Arch Capital Group Ltd.
RenaissanceRe Holdings Ltd.
Allied World Assurance Company Holdings, Ltd
Endurance Specialty Holdings Ltd.
Catlin Group Limited
AXIS Capital Holdings Limited
Aspen Insurance Holdings Limited
1,536,854
1,100,270
897,407
851,101
838,858
606,887
536,104
508,903
497,886
474,000
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2009 Delivers Strong Earnings But Long-Term Performance Still Lags
BERMUDA INSURANCE MARKET 2010
B E r m uDa I n S ur a n cE S ur v E y 2 0 1 0
In a decade marked by sIgnIfIcant operatIng performance volatIlIty, 2009wIll be remembered as one of the good years for bermuda-based Insurers
and reInsurers. after a stIcky start, the combInatIon of few catastrophe losses and ultImately sIgnIfIcant Investment gaIns led partIcIpants In our
bermuda Insurance survey to report very strong operatIng results wIth an average return on equIty (roe) of 23%, aggregate comprehensIve
Income of $15 bIllIon, and an ImpressIve 37% growth theIr aggregate capItal and surplus. thIs Is In stark comparIson wIth a dIsappoIntIng roe
of -5%, comprehensIve loss of $8 bIllIon,and 16% contractIon In aggregate capItal and surplus reported by these companIes In 2008. whIle the
markets Improved operatIng performance In 2009 helped bermuda (re)Insurers sIgnIfIcantly boost theIr capItal posItIon and strengthen theIr
balance sheets, It also hIghlIghted the contInued rollercoaster experIenced by these players over the past 10 years.
sImIlar to most global reInsurers and many u.s. prImary property/casualty Insurers, over the past decade bermuda wrIters have endured
sIgnIfIcant losses stemmIng from the soft u.s. casualty cycle of the late 1990s, the september 11 terrorIsm events In 2001, the devastatIon of
hurrIcane katrIna In 2005, and unprecedented Investment losses resultIng from the fInancIal markets crIsIs In 2008, among others. but these
companIes also saw strong operatIng results In a number of years,wIth low catastrophe actIvIty sIgnIfIcantly contrIbutIng to strong operatIng
performance In 2003, 2006, 2007, and 2009. all In all, our surveyed partIcIpants reported a 5-year average roe of 10% from 2005-2009, a
relatIvely low fIgure when rIsk-adjustIng thIs sectors returns for the Inherent uncertaInty In property/casualty (re)Insurance lInes and the
sIgnIfIcant volatIlIty experIenced by these players on a year-over-year basIs. lookIng out at a longer track record, bermuda (re)Insurers
by lalIne carvalho, dIrector
f
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performance falls even further, with an
estimated 10-year ROE of 9%.
Despite the markets disappointing long-
term performance, we believe there is
reason for optimism with regard to Bermuda
players future earnings streams. One of the
key reasons is the continued investment by
(re)insurers on the island in their enterprise
risk management (ERM) programs to minimizethe impact of future large loss events and
optimize risk adjusted returns. As a result,
a number of Bermuda (re)insurers are, in
our opinion, in the vanguard of embedding
modeling capabilities among property/casualty
(re)insurers around the world. Most have Chief
Risk Officers and have continued to formalize
and expand their ERM programs. Improved
risk aggregation and risk monitoring resulting
from these processes should help these writers
better define their risk appetite and translate
this into risk limits for peak catastrophe zones,
achieve improved portfolio diversification,
and avoid concentrations in any one lineof business, geographic zone, or investment
class. Their more sophisticated emerging risk,
risk-adjusted pricing and capital allocation
techniques should also provide these companies
with tools enabling them to refrain from the
predatory pricing seen in U.S. casualty markets
in the late 1990s. Compensation systems for
many (re)insurers on the island have also been
changed to reward underwriters and senior
management based on long term bottom line
profits, rather than top line growth. Ultimately,
all these improvements should lead to better
operating results in future years.
Some of the fruits of this effort could already
be seen in 2008, when Bermuda players
relatively conservative and well diversified
investment portfolios helped them avoid
steeper investment losses during the capital
markets crisis. In addition, efforts to reduce
catastrophe exposure concentrations sinceHurricane Katrina helped these companies post
relatively good underwriting results in 2008
(as seen in our survey participants average
combined ratio of 91%) despite significant
industry losses related to U.S. Hurricanes
Ike and Gustav. Bermuda (re)insurers have
also remained prudent in their underwriting
approach, in our view, cutting back exposures
in regions of the world where pricing has been
under greatest pressure. For those players on
the island with significant casualty writings,
such discipline has meant substantially cutting
back their U.S. casualty reinsurance writings
following several years of pricing decline inthat market since 2004.
Despite these positive factors, we believe
Bermuda writers still face significant challenges.
Pricing for property and (to a lesser extent)
casualty reinsurance covers saw increased
pressure during this January 1, 2010 renewal
cycle as a result of the combination of increased
risk appetite by reinsurance players (given their
stronger capital positions) and weaker demand
due to the global economic slowdown and
increased retentions by primary companies.
In addition, after a slowdown in premium rate
declines through most of 2009, pricing erosion
for U.S. property/casualty insurance lines has
picked up again due to similar dynamics of
increased availability of capital and lower
product demand. Given this scenario, we see
limited opportunity for profitable growth both
in insurance and reinsurance during 2010.
Uncertainty with regard to the pace andshape of recovery for most global economies
in coming months also leaves several questions
unanswered for property/casualty (re)insurance
writers, including how stable the capital
markets (and thus their investment returns)
might be over the next 12-24 months, when
demand for (re)insurance products may pick up
again, and how factors such as unemployment
and potential inflationary pressures may affect
profitability margins. Because of inflations
potential to erode casualty insurance and
reinsurance margins by increasing the severity
of losses, we believe that property/casualty
(re)insurers offering casualty covers are atparticular risk of adverse inflationary trends.
For Bermuda players participating in our
survey, this concern is slightly diminished
by the fact that approximately two-thirds of
their aggregate writings consist of property,
property/catastrophe, and other short-tail lines
of business. However, companies on the island
with relatively large casualty portfolios such
as PartnerRe, Everest, XL, Platinum, Harbor
Point, and Arch could face significant margin
compression if future pricing for casualty fails
to keep up with inflationary trends.
Earnings volatility is also expected to remain
a challenge for Bermuda (re)insurers, given the
islands significant role in providing severity-
driven property/catastrophe and other short-tail
coverages to clients around the world. The first
quarter of 2010 was no exception, with the recent
earthquake in Chile and European Windstorm
Xynthia expected to lead many Bermuda writers
to report only break-even results for the quarter.
For those players with more significant property/
catastrophe books of business and significant
exposure to Chile, their loss could exceed one
quarters worth of earnings.
Although these losses are within our
expectations given the size of estimated
industry losses for Chile ($5-$10 billion in
estimated insured losses) and Xynthia ($2-$4
billion), the occurrence of these events so early
in the year places doubt on earnings prospects
for Bermuda writers in 2010, particularly
if the Atlantic hurricane season generates
significant insured losses this fall. Many writers
on the island expect the Chilean earthquake
and Xynthia to use up as much as 50%-
80% of their allocated catastrophe budget
for 2010. This factor, combined with weaker
pricing in property and casualty writings in
36 Bermudian Business April/May 2010
Reur o Equiy
Oil Isurace Limied
Oil Casualy Isurace, Ld.
Validus Holdigs, Ld.
Hiscox Ld.
Mopelier Re Holdigs Ld.
Amli Bermuda Ld.
ParerRe Ld.
ReaissaceRe Holdigs Ld.
Cali Group Limied
%Percentages based on Return on Average Equity
Copyright 2010 Bermudian Business /Deloitte.
0 20 6040
Lacashire IsuraceCompay Limied
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Copyright 2010 Bermudian Business /Deloitte. A p r i l /M a y 2 0 1 0 Bermudian Business 37
Ivesme Porfolio by %
100
90
80
70
60
50
40
30
20
10
0
2005 2006 2007 2008 2009
%
Year
recent months, is likely to prevent Bermuda
(re)insurers from seeing their 2010 ROEs
anywhere close to the very strong levels
reported in 2009.
2009 In REVIEw StROnG YEAR OVERALL2009 will surely go on record as the best year
for Bermuda (re)insurers over the past decade
if judged by reported GAAP net income of$11 billion and ROE of 23%. The only other
year coming close to this figure was 2006,
when our survey participants reported net
income of $9 billion and ROE of 22.5%.
Due to significant differences in investment
accounting methods by Bermuda (re)insurers,
however, net income and ROE have become
less accurate guides to underlying earnings
since 2008. This is because GAAP net income
(the numerator for our GAAP ROE calculation)
includes realized investment gains/losses for
all, but only captures unrealized investment
gains/losses for those Bermuda writers that
have chosen to fully adopt fair value guidelinesunder FAS 159 (about half of our surveyed
participants). For the other writers, their
unrealized investment losses are not part of net
income but flow as a direct adjustment to these
companies shareholders equity (which we
refer to as capital and surplus in this survey).
Given the significant volatility experienced
in the capital markets during 2008 and
2009, Bermuda (re)insurers experienced large
movements in their unrealized investment
gains/losses during these two years, leading
to abnormally different reported net income
and ROE figures depending on their chosen
accounting method. For this reason, for the
purposes of 2008 and 2009 calendar years, we
view comprehensive income (which normalizes
all surveyed participants by including
unrealized losses for all companies) as a more
meaningful measure than net income.
When judging Bermudas performance based
on comprehensive income, 2009 comes out
as an even stronger year with $2 billion in
unrealized investment gains contributing to a
record $15 billion in comprehensive earnings.
This represented a 30% return on surveyed
participants aggregate capital and surplus at the
beginning of 2009, and was a key contributor
to the extraordinary 37% growth in aggregate
capital and surplus during 2009. The strength
of this performance enabled survey participants
as a group to fully recover from their worst
year on record in 2008, when aggregate capital
and surplus dropped by 16% due to deep
realized and unrealized investment losses.
These companies ended 2009 with aggregate
capital and surplus of $66 billion, significantly
higher than $49 billion at year-end 2008, and
even higher than the pre-capital market crisis
level of $58 billion at year-end 2007.
ne Icome, Gross & ne Premium wrie adCapial & Surplus by Icorporaio Dae
(All amous i billios of US dollars)
1975 andprior
1976-1985
1986-1990
1991-1995
1996-2000
2001-2005
2006-Current
30
25
20
15
10
5
0
Icorporaio Dae
$
ne Icome
Gross Premium wrie
ne wrie Premium
Capial ad Surplus
Corporae Deb Securiies
Foreig Goverme Deb Securiies
Equiies
Morgage & Asse Baced Securiies
Oher
US Goverme & Goverme
Agecy Deb Securiies
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Although large realized and unrealized
investment gains accounted for a significant
portion of earnings in 2009, operating results
were also helped by low catastrophe activity,
good accident year performance and continued
favorable loss reserve development for prior
years (particularly accident years 2002 to
2006). This enabled survey participants to
report what we consider to be a strong
average combined ratio of 73% in 2009,
compared with 84% in 2008. For those
players with shorter-tail, catastrophe-driven
portfolios, combined ratios were even lower.
This included companies such as Montpelier
(with combined ratio of 38% for 2009),
Lancashire (41%), Tokio Millenium (43%),
RenRe (45%), and Amlin Bermuda (58%).
Players with a greater proportion of casualty
and specialty writings (including professional
liability covers) as part of their business mix
also performed well, with most reporting
combined ratios in the mid-80%/low 90%
range. Among them were companies such as
Allied World (with a combined ratio of 76%),
Everest (90% based on the consolidated
group), AXIS (81%), Arch (88%), and
PartnerRe (75%).
Similar to 2008 and in line with other
global reinsurers and U.S. primary companies,
Bermuda (re)insurers reported significant
favorable loss reserve development for prior
years in calendar year 2009. For global
reinsurers and many Bermuda (re)insurers,
these reserve releases have contributed to
reduce 2008 and 2009 calendar-year combined
ratios by between 5% to 20% depending onthe company. We expect moderate reserve
releases to continue into 2010.
While current data suggest that accident
years 2002-2006 were conservatively reserved
by global reinsurers and U.S. primary writers
in their initial years (thus leading to current
reserve releases), we are concerned that the
continued high levels of reserve releases may
weaken these companies reserve adequacy
and balance sheets over the next two to three
years. In addition, although global reinsurers
and U.S. primary insurers appear to be well
reserved for potential claims related to the
capital market crisis (particularly in Directors& Officers and Errors & Omission lines), we
have concerns that loss reserves for accident
years 2007-2009 may not be as robust as those
for 2002-2006 given a number of factors. These
include changes in ultimate loss picks in recent
years to reflect the industrys more favorable
experience since 2002 (which translates
into lower estimated ultimate loss ratios);
potentially higher than expected losses due to
the capital markets fallout and as a result of the
global economic slowdown; and the potential
that frequency trends and/or inflation could
increase. These factors create the potential for
loss reserve strengthening at some point in
the not too distant future. This concern also
applies to Bermuda (re)insures, since most
of these companies write a combination of
primary and reinsurance covers, and many of
them have significant U.S. risk exposure.
EVER GROwInG COMPAnIES
When looking at the Bermuda (re)insurancemarket on a year-over-year basis, one of its
most noticeable features is the fast pace of
growth of companies on the island. Through a
combination of organic growth, capital raising
initiatives, and acquisitions, participants in our
survey have experienced a 5-year compound
growth rate of 83% in their aggregate capital
and surplus from 2005 through 2009. While
at year-end 2005 only 6 out of our 22 survey
participants had more than $2 billion in
capital and surplus, this figure doubled to
12 companies at year-end 2009. Even more
impressive, the number of market participants
with capital and surplus above $3 billiontripled from 3 at year-end 2005 to 9 at year-
end 2009.
It is also interesting to note that during this
5-year period aggregate premium writings
grew by a much more modest 15%. We
believe this can be explained by a number
of factors. Among them is a more stringent
view of required capital to support property/
catastrophe lines of business by many
Bermuda players following substantial losses
incurred by the market due to U.S. hurricanes
Katrina, Rita, and Wilma (KRW) in 2005.
As a result, many of these writers currently
allocate significantly higher levels of capital to
the same amount of risk today as compared to
prior years. Many Bermuda writers have also
strategically decided to keep significant levels
of excess capital in their companies as a means
of offering higher security to their clients and
as a reflection of their desire to limit the need
to tap the capital markets in the case of a large
catastrophe loss (following KRW a significantnumber of Bermuda (re)insurers needed to
tap the capital markets to replenish their
capital position). A number of players on the
island have also engaged into acquisitions in
recent years as a means of broadening their
platform, diversifying their risk profiles, and
just as importantly, achieving a larger capital
base. This reflects the premise by a number of
Bermuda management teams that clients may
prefer to do business with a larger company.
Lastly, premium growth in recent years has
been dampened in part by gradual softening
of premium rates in a number of lines of
business (particularly casualty) since 2004.This last factor is fairly important because to
the degree that current pricing for property
and casualty (re)insurance covers may not
support profitable growth opportunities over
the near-term, the increased capital position
of most Bermuda players in 2009 has left
many of them with significant excess capital
and limited means of deploying it. This is
already leading many of these writers to look
for ways to return capital to shareholders
either through share repurchases or
special dividends.
Copyright 2010 Bermudian Business /Deloitte.38 Bermudian Business April/May 2010
Cashflos (All amous i billios of US dollars)
15
10
5
0
(5)
(10)
(15)
(20)
2005
2006
2007
2008
2009
$
Financing TotalInvestingOperating
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Copyright 2010 Bermudian Business /Deloitte. A p r i l /M a y 2 0 1 0 Bermudian Business 39
tHE tOP 10XL stood at the top of our ranking this
year as the largest Bermuda (re)insurer based
on 2009 capital and surplus of $9.6 billion
and premiums earned of $5.1 billion. While
maintaining its position as the largest player
for many years, XL has reported some of the
most modest rates of growth in capital among
companies on the island, with capital and
surplus growing by a compound 13% from
2005 through 2009. In addition, XL has seen
a contraction of 32% in reported premiums
earned over the last five years. This is partially
explained by this groups continued operating
difficulties, with a poor 5 year-ROE of -5%.
This has resulted in significant restructuring of
XLs operations in recent years.
Although XLs underwriting performance was
good in 2009 with a combined ratio of 94%,
this group reported the weakest ROE of 1%
among survey participants. This was partially
reflective of XLs significant restructuring of
its investment portfolio in 2009, following
substantial investment losses in 2008. The
investment portfolio restructuring led to $900
million in realized investment losses in 2009, and
contributed to the groups modest net income of
$74 million for the year. This represented a
significant improvement, however, compared to
a $2.6 billion loss in 2008.
PartnerRe ranked as the second largest
player in 2009 based on total capital and
surplus of $7.6 billion and based on premiums
earned of $4.1 billion. PartnerRes total capital
and surplus increased significantly at year-
end 2009 from $4.2 billion at year-end 2008,
reflective of its acquisition of Swiss-based
reinsurer PARIS RE S.A. in the fourth quarter
of 2009. With the benefit of this acquisition
we estimate that PartnerRes net writings could
be closer to $5.0 billion in 2010. PartnerRe
reported what we consider to be strong
operating results in 2009, ranking #10 based
on ROE of 26%.
AXIS ranked #3 based on total capital and
surplus of $5.5 billion and #5 based on net
premiums earned of $2.8 billion. A consistent
performer, AXIS has achieved an average ROE
of 14% over the past five years. Its capital basehas also grown by a significant 57% from year-
end 2005. AXIS had one of the lowest ROEs
among market participants in 2009 at 10%
(although still good), partially reflecting $312
million in other than temporary investment
losses related to its medium term notes. The
groups underwriting performance, however,
remained strong, in our view, with an 81%
combined ratio. Arch, which reported just
slightly higher net premiums earned than AXIS
and took the #4 spot based on 2009 premiums,
also ranked #4 based on capital and surplus
of $4.3 billion. Another consistent performer,
Arch ranked #14 based on ROE of 22%.
Validus, which ranked #12 based on total
capital and surplus in our survey last year
jumped to #5 this year following its acquisition
of IPCRe. Validus capital base virtually
doubled from $1.9 billion at year-end 2008
to $4.0 billion at year-end 2009. Part of the
Class of 2005 Bermuda formations, Validus
has been successful in establishing itself in
the reinsurance marketplace (particularly in
property/catastrophe and other short-tail lines),
and has significantly expanded and diversified
its platform since 2006. This groups operating
performance track record has been strong so
far, in our view, with a 4-year average ROE
of 19%. RenRe, one of the longer-standing
and most respected property and property/
catastrophe writers on the island, ranked #6
based on total capital and surplus of $3.8
billion, #12 based on premiums earned of $1.3
billion, and #9 based on ROE of 24%.
Not surprisingly for a low catastrophe year, the
Top ROE performers in 2009 were companies
with the greatest proportion of catastrophe-
driven books of business. These players very
strong ROEs largely benefited from very strong
underwriting results during 2009, in ouropinion. This included companies such as OIL,
Lancashire, Validus, Hiscox and Montpelier.
OIL and Oil Casualtys (OCIL) ROEs of 55%
and 32%, respectively, which we consider to
be very strong, placed them as the #1 and
#3 best ROEs in 2009. Their performance
not only reflected strong underwriting results
but also exceptionally large investment gains
related to the recovery in the capital markets.
OIL and OCIL have traditionally held more
aggressive investment portfolios compared
to other Bermuda (re)insurers, with a greater
proportion of their investments allocated to
equities. This contributed to these companies
seeing some of the greatest swings in investment
performance between 2008 and 2009. During
2008 OIL and OCIL suffered deep investment
losses. OILs 2008 underwriting results were also
significantly affected by large losses incurred by
its members, with the company reporting the
highest 2008 combined ratio (138%) among
surveyed participants. In a reverse picture from
2009, these players reported the worst ROE
performance in 2008 among survey participants,
with ROE of -39% for OCIL and -66% for OIL.
MARkEt PROFILEBermuda writers have broadly embraced a
hybrid business model under which they
offer both insurance and reinsurance products,
rather than concentrating in just one of these
All Compaies Surveyed
Cash & CashEquivalents
7%
QuotedInvestments
65%
OtherInvestments
5%
Other Assets14%
Quoed Ivesmesby Composiio
Other10%
Equities3%
Mortgage & AssetBacked Securities
28%
US Government &
Government AgencyDebt Securities
16%
ForeignGovernment Deb
Securities10%
Corporate DebtSecurities
33%
Selected dataFiscal 2009
Goodwill & OtherIntangible Assets
2%
ReinsuranceBalances
Receivable7%
toal Asse Composiio
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Copyright 2010 Bermudian Business /Deloitte.40 Bermudian Business April/May 2010
segments. Among the few remaining pure
reinsurers on the island are PartnerRe, Harbor
Point, and Platinum, although Harbor Point
is expected to merge with Max later this year,
with the merged group expected to offer a
combination of insurance and reinsurance
products. And among our survey participants
OIL is the only 100% direct insurer. All other
survey participants have a more blended profilebetween these two segments of the business.
The motivation for most management
teams to offer a combination of insurance
and reinsurance products is the flexibility this
business strategy allows to allocate capital
and resources to segments of the market
that offer the best pricing and competitive
conditions at the time, thus allowing for
better cycle management and improved risk
and earnings diversification. The challenge
we see with this strategy is that insurance
and reinsurance are very different businesses,
with different needs in terms of staffing, local
presence, and risk characteristics. Achieving
comparable levels of competence in both is
challenging. We also believe there is potential
for risk aggregation among different insurance
and reinsurance lines, with the potential for
higher than expected losses for companies
improperly capturing such risks. So far we
believe Bermuda (re)insurers have approached
this hybrid model prudently, with no adverse
impact on their earnings or operations.
Most have actively moved writings between
their insurance and reinsurance segments
depending on their view for profitability in
different markets. In addition, continued
improvements in their ERM processes has
increased our confidence in these companies
ability to manage potential aggregation of
risk among their business segments and to
minimize other potential operational hazards
derived from running distinct insurance and
reinsurance operations.
Geographic and line of business diversification
has continued to be a key strategic theme for
many Bermuda (re)insurers. Over the last five
years many of these companies have expanded
their platform to encompass a broader range
of products. A number have also opened new
offices in parts of Europe, North America andelsewhere, with the intent of sourcing more local
business that typically does not reach Bermuda.
This has included a number of players from the
Class of 2005 formations, which have achieved
improved diversification through a combination
of organic growth, acquisitions, and the entrance
into the Lloyds market. This partially explains
the decline in the proportion of aggregate gross
writings among survey participants sourced
directly out of Bermuda, which stood at 10%
in 2009 compared to 16% in 2005. Market
participants have also seen an increase in gross
Gross Premiums by Line of Business
Year
100
80
60
40
20
0
Accident & Health
Excess Liability
Financial Guarantee
Finite
Life
Marine & Aviation
Other
Professional Liability
General Liability
Casualty
Property
Property Catatrophe
Terrorism
Workers Compensation
%
200920072005
Gross Premiums Written by Geographic Region*
%
100
80
60
40
20
02005
20062007
20082009
Year
* At 2009, the above graph represents 91% of
the gross premium written of all participants,
as not all participants reported this data.
2006 2008
North America
Europe
UK
Rest of World
Bermuda
Asia, Australia & New Zealand
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writings sourced from the UK and continental
Europe (35% in 2009 versus 28% in 2005) as
well as Asia, Latin America and other emerging
regions (11% in 2009 versus 4% in 2005).
Similar to prior years, North America remains
the largest source of premium production for
Bermuda, representing 50% of aggregate gross
premiums in 2009.
Another feature to note among Bermuda
writers this year is the increasing conservatism
in their investment portfolios. While most
already held fairly conservative investmentportfolios prior to 2008, appetite for
investment volatility among those players that
strategically took more risk on the portfolio
appears to have declined. Recognizing
that conditions in the capital markets have
improved from a year ago but are still not
back to normal, management teams on the
island have also continued to place significant
emphasis on their liquidity position. This
has led many of these players to increase the
amount of cash and short term investments
as a proportion of their holdings over the
last two years. Many have also curtailed their
equity and alternative investment (which
declined to 12% of surveyed participants
aggregate investment portfolio in 2009 versus
15% in 2007). Most companies have also
focused on maintaining a fairly short duration
in their investment portfolios (with many with
duration around 2.0-2.5 years) as a means of
protecting it from potential gyrations in credit
spreads and future inflationary pressures. We
expect this conservative investment posture
to remain in place among Bermuda writers at
least over the next 12-18 months.
tHE nEVER EnDInG PRICInG CYCLE
Our survey participants ranked renewal
pricing rates and growing market share versus
profitability as either #1 or #2 among their
management teams key strategic concerns
over the near term. This is not surprising,
considering increased pressure on property
and casualty pricing seen in global reinsurance
and U.S. commercial lines in recent months.
So far it is unclear whether the Chilean
earthquake and Windstorm Xynthia will have
any meaningful impact on pricing trends for
property/catastrophe risks on the June 1 and
July 1 reinsurance renewal season. During the
January 1 2010 reinsurance renewal season
pricing for US property/catastrophe risks fell
about 5%-10%, while Europe was about flat to
down 5%.
While we believe property/catastrophe risks
are still offering higher returns than casualty
reinsurance at this stage, the downward trend
in pricing in this line could significantly
erode risk-adjusted returns in this segment if
it continues for a protracted period of time.
Beyond the recent catastrophe events, it is
unclear how global warming and expected
changes in weather patterns might affect the
frequency and severity of natural catastrophe
events in coming years. With a significant
proportion of their business consisting of
property/catastrophe writings, this concern is
directly relevant to writers on the island.
We also believe U.S. casualty insurance and
reinsurance pricing, which has been under
continued pricing pressure since 2004, could
present challenges for writers in Bermuda.
While the decline in U.S. casualty insurance
and reinsurance rates has been partially driven
by lower frequency of losses for most casualty
lines over the last five years, there is significant
divergence of opinion among insurers and
reinsurers as to how much credit to provide in
the pricing of the business for such favorable
trends, and whether these trends will continue
into the future (most market players currently
believe this trend is unsustainable). There is alsosignificant uncertainty as to whether inflation
will creep up over the next three to five years,
with management teams left to figure out how
to incorporate this risk into their pricing and
claims estimates. Further raising the stakes in
casualty underwriting is the fact that current
market conditions will make it very difficult
for reinsurers to make up for underwriting
losses through earnings in their investment
portfolios. This reflects the expectation of
lower investment returns in coming years
as a result of more conservative investment
portfolios and relatively low interest rates. We
believe premium rate adequacy is particularly
tenuous in casualty reinsurance, where further
weakening in premium rates and/or terms and
conditions could easily tip the scale toward
unprofitable underwriting.
REtURnInG ExCESS CAPItAL
With the return to a significant excess capital
position at year-end 2009, many Bermuda
(re)insurers have started returning capital to
shareholders either through stock buybacks
or special shareholder dividends. Given
the relatively weak pricing conditions for
insurance and reinsurance risks and limited
potential for growth at the moment, we believe
such measure is prudent as long as companies
are able to balance the need to reduce excess
capital with the risk of needing to reload in the
capital markets if a major catastrophe event
occurs.
We believe that the majority of Bermuda
(re)insurers rated by Standard & Poors entered
2010 with capital adequacy levels in the AA to
AAA range, according to our capital adequacy
model. To the extent that most Bermuda
writers plan to return capital in 2010 that is
either commensurate with, or lower than their
expected earnings for the year, this shouldenable these companies to still end 2010 with
very strong capital adequacy. Significant losses
from the Chilean earthquake and Windstorm
Xynthia, however, may change management
teams appetite to return capital this year or at
least until the Atlantic hurricane season is over
and a better picture of 2010 earnings emerges.
Increased merger and acquisition activity is
also a likely outcome of Bermuda (re)insurers
strengthened capital position and limited
growth opportunities over the near term. Over
the past year the market already saw Validus
ne Premiums wrie o Capial & Surplus(All amous i billios of US dollars)
70
60
50
40
30
20
10
0
Capial & Surplus
ne Premiums wrie
2005
2006
2007
2008
2009Year
$
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acquisition of IPCRe, PartnerRes acquisition
of PARIS RE, and the recent announcement
by Harbor Point and Max on their intention
to merge. We believe Class of 2005 reinsurers
are among the most likely players to entertain
M&A activity in coming months, given
their relatively narrow line of business focus
(primarily property and other short-tail lines)
and their desire to further diversify theirbusiness profile. While many of the right
elements seem to be in place to foster mergers
and acquisitions among (re)insurance players
over the next 1-2 years (including improved
liquidity in the capital markets), there are some
deterrents to more significant M&A activity. An
important one is the continued low valuation of
the stock of most publicly traded (re)insurers
on the island, which could make valuation
discussions among interested parties difficult.
As of year-end 2009, most publicly traded
companies participating in our survey had their
stock trading at 70%-85% of book value.
Bermuda domicile under threat?Between 2001 and 2005 Bermudas significance
in the global (re)insurance markets increased
significantly. In that period the island
witnessed a flurry of formation activity. This
appeared to solidify Bermudas position as
(re)insurers domicile of choice. As we look
at 2010 and beyond, however, management
teams of many global (re)insurers seem to be
looking at other locations around the world
as potentially attractive domiciles. Several
European countries in particular (such as
Ireland and Switzerland) appear to be gaining
Sk Ps ov 2009/2010
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
90
80
70
60
50
40
30
20
10
0
$
m2009 2010
a W ass cpyhgs, l
a cp Gp l.
ag Gp l.
asp is hgs l.
aXiS cp hgs l
c Gp l
e Spy hgs l
Fgs rs hgs
hsx l.
mx cp Gp l.
mp r hgs l.
Pr l.
rssr hgs l.
Vs hgs, l.
Xl cp l.
S & Ps 500 isix (1:10)
cps f n Ps e(a s bs f uS s)
30
25
20
15
10
5
0
(5)
(10)
uwg Pf/lss
uwg expss
lsss & lae
Y
$
2005
2006
2007
2008
2009
2008
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Selected data
Fiscal 2009
PUBLICLY-TRADED COMPANIES
Stock
Exchange
Symbol
Arch Capital Group Ltd.
Argo Group Ltd.
Aspen Insurance Holdings Limited
AXIS Capital Holdings Limited
Catlin Group Limited (1)
Endurance Specialty Holdings Ltd.
Flagstone Reinsurance Holdings Limited
Hiscox Ltd. (3)
Max Capital Group Ltd.
Montpelier Re Holdings Ltd.
PartnerRe Ltd. (4)
RenaissanceRe Holdings Ltd.
Validus Holdings, Ltd.
XL Capital Ltd
AWH
ACGL
AGII
AHL & AHL BH
AXS
CGL
ENH
FSR
HSX.L
MXGL
MRH
PRE
RNR
VR
XL
46.07
71.55
29.14
25.45
28.41
3.40
37.23
^
3.17
22.30
17.32
74.66
53.15
26.94
18.33
Common Stock Price
(as of Dec. 31) ($)
40.60
70.10
33.92
24.25
29.12
4.34
30.53
^
3.40
17.70
16.79
71.27
51.56
26.16
3.70
52 Week High/Low
(Jan. 1 - Dec. 31) ($)
48.74/33.00
72.25/44.68
36.66/25.33
28.44/18.46
31.46/17.92
4.49/2.83
38.44/19.71
12.45/7.24
3.64/2.73
23.69/13.00
17.95/10.55
80.99/54.65
57.37/39.37
27.24/20.93
18.95/2.67
Prior
49.72/22.46
75.31/54.80
41.44/25.84
29.90/14.33
41.81/17.27
4.54/2.66
42.22/20.0
14.26/7.26
3.61/1.92
30.27/09.96
17.94/10.13
82.23/48.48
59.27/35.16
26.22/14.84
51.48/2.68
Curr Prior
3.76
5.21
7.63
4.37
8.46
3.61
4.30
^
4.22
5.16
3.23
3.12
3.94
2.83
6.77
P/E Ratios
10.83
17.14
16.55
26.35
11.65
n/m
23.30
^
18.09
n/m
n/m
n/m
n/m
42.19
1.06
Curr PriorCurr
64.61
73.01
52.37
35.43
37.84
7.68
47.74
14.37
4.81
28.01
21.08
84.51
51.68
31.38
24.60
Book value per
common share ($)
49.29
51.36
44.18
28.95
29.08
6.61
35.76
11.53
3.72
22.94
15.88
63.95
38.74
25.64
15.46
Curr Prior
0.71
0.98
0.56
0.72
0.75
1.00
0.78
^
1.06
0.80
0.82
0.88
1.03
0.86
0.75
Market/book
value ratio ($)
0.82
1.28
0.77
0.84
1.00
1.00
0.85
^
1.32
1.08
1.06
1.11
1.33
1.02
0.24
Curr Prior
12.26
13.74
3.82
5.82
3.36
1.52
9.14
2.87
1.18
4.32
5.36
23.93
13.50
9.51
0.61
Basic earning
per share ($)
3.75
4.09
2.05
0.92
2.50
-0.16
1.41
-2.20
0.35
-3.10
-1.69
0.22
-0.21
0.62
-10.94
Curr Prior
11.67
13.74
3.81
5.64
3.07
1.47
8.69
2.87
1.14
4.26
5.36
23.51
13.40
9.24
0.61
Fully diluted
earnings per
share ($)
3.59
4.09
2.05
0.89
2.26
-0.16
1.31
-2.20
0.33
-3.10
-1.69
0.22
-0.21
0.61
-10.94
Curr Prior
(1) Catlin Group Limited stock price denominated in GBP but reports in USD.(2) P/E ratio with n/m - due to the net loss attributable to common shareholders per common share for the year ended December 31, 2008, the P/E ratio is not meaningful.(3) Hiscox Ltd.'s common stock price and 52 week high/low are denominated in GBP; all other amounts shown in USD.(4) PartnerRe Ltd. P/E ratio based on fully diluted earnings per share.^ Information not provided by respondent
momentum given their proximity to the
European markets, a talented workforce, and
favorable tax treaties with the U.S.
Of particular concern to (re)insurers
currently is potential tax changes that could be
enacted by President Obamas administration
that could change the tax treatment of US-
sourced business going to Bermuda and
other low tax domiciles. With one of thekey operating advantages for (re)insurers
operating in Bermuda consisting of its tax-
free status, the prospect of taxation for US
business would have significant implications.
In addition, planned regulatory changes in
Europe related to Solvency II is viewed
by some (re)insurance management teams
as potentially offering a more stable and
sophisticated regulatory environment, even
though the Bermuda Monetary Authority
(BMA) has been aggressive in introducing
enhancements to its oversight of Bermuda
(re)insurers to keep up with Solvency II
expectations. Given these factors, discussion
among (re)insurers on the island about pros
and cons of a potential redomestication
of their companies to other domiciles has
become a more frequent topic over recent
years. To-date, however, few companies have
moved from Bermuda although over the
All Companies Surveyed (All amounts in billions of US dollars)
2005 20062007 2008 2009
70
60
50
40
30
20
10
0
(10)
Net Income
Losses & LAE
Premiums Earned
Total Capital & Surplus
$
Year
(continued on page 50)
Allied World AssuranceCompany Holdings, Ltd
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16TH ANNUAL BERMUDIAN BUSINESSAll amounts in U.S. $ 000s)scal 2009
llied World Assurance Company Holdings, Ltd
mlin Bermuda Ltd.
rch Capital Group Ltd.
rgo Group Ltd (4)
spen Insurance Holdings Limited
XIS Capital Holdings Limited
atlin Group Limited
ndurance Specialty Holdings Ltd.
verest Reinsurance (Bermuda), Ltd. (2)
lagstone Reinsurance Holdings Limited
arbor Point Limited
iscox Ltd.
ancashire Insurance Company Limited
Max Capital Group Ltd.
Montpelier Re Holdings Ltd.
il Casualty Insurance, Ltd.
il Insurance Limited
artnerRe Ltd.
RenaissanceRe Holdings Ltd.
okio Millennium Re Ltd.
alidus Holdings, Ltd.
L Capital Ltd
S&Ps Rating (1)
as of 15 March 10
A-
A
A
A-
A
A+
A
A
A+
NR
A-
A
NR
A-
A-
BBB+
A-
AA-
AA-
AA
NR
A
Stable
Stable
Positive
Stable
Stable
Stable
Stable
Stable
Stable
-
Stable
Stable
-
Stable
Stable
Stable
Stable
Negative
Stable
Negative
-
Negative
S&Ps Outlook2009 (3) Period End
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
11/30/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
12/31/09
Basis ofaccounting forsurvey response
US GAAP
UK GAAP
US GAAP
US GAAP
US GAAP
US GAAP
US GAAP
US GAAP
Bermuda Statutory
US GAAP
US GAAP
Other
Other
US GAAP
US GAAP
US GAAP
US GAAP
US GAAP
US GAAP
US GAAP
US GAAP
US GAAP
Current
3,213,295
1,580,570
4,323,349
1,614,900
3,305,000
5,500,244
3,278,051
2,787,283
2,572,527
1,211,018
1,889,700
1,805,270
1,268,100
1,564,633
1,728,500
450,785
2,481,884
7,645,727
3,840,786
1,241,504
4,031,120
9,615,090
66,949,336
Capital & Surplus
Prior
2,416,862
1,389,485
3,432,965
1,352,900
2,779,000
4,461,041
2,469,235
2,207,283
2,095,152
986,013
1,691,472
1,369,477
1,138,800
1,280,331
1,357,600
326,174
1,471,395
4,199,108
3,032,743
1,054,014
1,938,734
6,616,831
49,066,615
1,316,892
582,743
2,842,745
1,414,900
1,823,000
2,791,764
2,917,862
1,633,192
1,715,254
758,455
548,450
1,724,020
538,300
834,356
573,200
15,875
891,115
4,119,825
1,273,816
356,686
1,449,577
5,151,739
35,273,766
PremiumsEarned Current
606,887
390,971
851,101
117,500
474,000
497,886
508,903
536,104
441,748
242,192
250,126
440,380
389,500
246,215
463,500
124,616
1,100,270
1,536,854
838,858
200,522
897,407
74,991
11,230,531
Net IncomeCurrent
Class 4
Class 4
Class 4
Class 4
Class 4
Class 4
Class 4
Class 4
Class 4
Class 4
Class 4
Class 4
Class 4
Class 4
Class 4
Class 3
Class 2
Class 4
n/a
Class 3B
Class 4
Class 4
InsuranceRegulationClass
11/13/01
10/28/05
3/1/95
10/5/99
5/23/02
11/8/01
6/25/99
11/30/01
3/1/00
11/10/05
10/24/05
12/12/06
10/28/05
8/20/99
11/14/01
5/14/86
12/14/71
8/24/93
6/7/93
3/15/00
10/19/05
3/16/98
Date ofIncorporatio
1) All the ratings in this table are financial strength ratings of the lead rated operating companies with each group as of March 15, 2010.
2) All Everest Reinsurance (Bermuda) Ltd.'s financial information provided in this survey is unaudited.
3) Outlooks can be positive, negative, or stable, and signal a potential change in an interactive rating over the next 2-3 years.
4) For Argo Group Ltd., ratings refer to the financial strength ratings on the lead companies in Argo Group U.S.
R - Not Rated by Standard & Poor's.
Information not provided by respondent.
^ Geographic breakdown represents those companies which provided this information.
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Type of Insurance
as % of Premiums
Line of Business as
% of Premiums
Marine
&Aviat
oin
Financial
Guarantee
Acciden
t&Health
Property
ExcessLiability
Other
Life
Workers
Compen
sation
Gross Premiums Written by
Geographic Area^^
and DELOITTE INSURANCE SURVEY
Direct
27%
100%
30%
^
51%
51%
30%
54%
100%
91%
100%
31%
28%
43%
88%
5%
-
100%
72%
100%
72%
34%
Reinsurance
-
2%
2%
^
17%
8%
23%
2%
3%
-
7%
7%
20%
14%
-
-
-
10%
-
2%
36%
11%
-
-
-
^
-
-
-
2%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2%
^
-
-
3%
-
2%
-
-
2%
-
2%
-
-
-
-
-
-
1%
-
14%
21%
31%
^
30%
24%
18%
17%
49%
20%
14%
22%
44%
25%
15%
-
100%
17%
10%
-
16%
23%
30%
-
12%
^
4%
-
-
12%
13%
-
2%
-
-
8%
-
100%
-
-
-
-
-
-
-
-
6%
^
-
-
-
1%
4%
-
2%
-
-
6%
-
-
-
-
-
5%
1%
-
-
-
-
^
-
-
-
-
-
-
-
-
-
3%
-
-
-
15%
-
-
-
9%
27%
40%
26%
^
9%
12%
6%
28%
-
33%
2%
46%
-
13%
38%
-
-
36%
27%
11%
20%
28%
-
47%
-
^
6%
-
63%
1%
17%
-
17%
20%
-
-
4%
^
^
-
-
-
-
-
55%
41%
72%
^
77%
48%
17%
67%
67%
40%
65%
34%
45%
79%
56%
^
^
41%
85%
-
26%
45%
UK North
Am
erica
Asia,Au
stralia&
NewZea
land
PropertyCatastro
phe
-
37%
7%
^
13%
13%
21%
15%
-
47%
27%
4%
26%
-
47%
-
-
10%
63%
80%
24%
5%
Terrorism
-
-
1%
^
-
1%
4%
-
-
-
-
3%
10%
-
-
-
-
-
-
2%
2%
-
Europe
11%
5%
17%
^
4%
29%
5%
1%
12%
12%
5%
13%
6%
21%
6%
^
^
41%
3%
-
7%
43%
-
6%
4%
^
4%
-
4%
1%
-
6%
1%
1%
4%
-
4%
^
^
8%
2%
-
2%
-
Professio
nal
Liability
21%
-
13%
^
2%
28%
10%
10%
5%
-
27%
16%
-
20%
-
-
-
-
-
-
-
24%
Bermuda
34%
-
5%
^
-
23%
11%
30%
4%
-
12%
-
-
-
-
^
^
-
-
100%
-
12%
73%
-
70%
^
49%
49%
70%
46%
-
9%
-
69%
72%
57%
12%
95%
100%
-
28%
-
28%
66%
GeneralLi
ability
7%
-
-
^
2%
14%
12%
-
20%
-
19%
-
-
-
-
-
-
-
-
-
-
-
Casualty
-
-
-
^
23%
-
3%
13%
4%
-
-
-
-
9%
-
-
-
12%
-
-
-
-
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Copyright 2010 Bermudian Business /Deloitte.4 Bermudian Business April/May 2010
All amounts in U.S. $ 000s)
a s s e t s
BALANCE SHEET
6,971,394
1,261,903
10,759,855
4,237,300
5,970,000
10,051,828
5,193,237
5,094,319
5,580,381
1,461,285
2,079,501
3,885,413
1,651,700
4,241,999
2,374,700
677,882
5,165,385
15,075,978
4,295,792
991,791
5,351,144
29,307,171
131,679,958
184,869
582,134
109,026
97,000
27,000
570,276
-
351,352
155,736
45,934
144,951
11,782
11,000
314,849
94,100
-
-
2,350,358
1,957,619
181,889
37,615
2,514,860
9,742,350
681,803
213,978
2,427,896
916,300
710,000
2,435,984
1,829,436
935,281
364,662
290,169
138,141
1,073,238
214,300
1,464,633
137,800
51,678
353,260
2,615,916
620,399
135,791
902,801
8,893,974
27,407,440
9,653,153
2,302,271
15,375,790
6,896,800
8,257,000
15,306,524
11,681,740
7,666,694
6,995,684
2,566,768
3,223,415
6,146,033
2,006,300
7,339,746
3,102,300
1,061,101
6,007,030
23,732,544
7,801,041
1,501,204
7,019,140
45,579,675
201,221,953
4,761,772
386,044
7,873,412
3,203,200
3,331,000
6,564,133
5,392,283
3,157,026
3,669,263
480,660
707,840
2,494,410
411,800
4,550,607
680,800
343,000
3,331,281
12,426,676
1,702,006
84,412
1,622,134
20,823,524
87,997,283
1,106,601
229,489
1,720,270
1,379,400
794,000
1,292,877
1,441,234
565,348
543,241
278,956
242,363
676,403
1,000
567,301
288,900
281,300
-
2,249,181
589,827
104,622
196,547
374,844
14,923,704
928,619
297,758
1,433,331
803,600
908,000
2,209,397
1,723,971
832,561
541,531
330,416
374,491
922,575
255,400
628,161
215,400
20,123
1,706,816
446,649
102,797
724,104
3,651,310
19,057,010
Cash & CashEquivalents Quoted Investments Other Investments
ReinsuranceBalances
Receivable Other Assets Total Assets Loss ReservesUnearned Premium
Reserve
llied World Assurance Company Holdings, Ltd
mlin Bermuda Ltd.
rch Capital Group Ltd.
rgo Group Ltd
spen Insurance Holdings Limited
XIS Capital Holdings Limited
atlin Group Limited
ndurance Specialty Holdings Ltd.
verest Reinsurance (Bermuda), Ltd. (1)
lagstone Reinsurance Holdings Limited
arbor Point Limited
iscox Ltd. (2)
ancashire Insurance Company Limited
Max Capital Group Ltd.
Montpelier Re Holdings Ltd.
il Casualty Insurance, Ltd.
il Insurance Limited
artnerRe Ltd.
RenaissanceRe Holdings Ltd. (3)
okio Millennium Re Ltd.
alidus Holdings, Ltd.
L Capital Ltd
379,751
14,767
334,571
18,100
748,000
864,054
2,499,655
528,944
351,664
438,101
360,530
418,032
128,300
702,278
202,100
50,241
488,385
738,309
260,716
81,981
387,585
3,643,697
13,639,761
Goodwill andOther Intangible
Assets
328,735
-
24,172
248,700
8,000
91,505
718,178
191,450
-
52,323
257,929
81,165
-
48,686
4,700
-
-
702,802
76,688
5,130
143,448
845,129
3,828,740
1) All Everest Reinsurance (Bermuda) Ltd's financial information provided in this survey is unaudited.
2) Hiscox Ltd. balance sheet amounts were translated from GBP to USD using the year end closing rate of $1.61.
3) Included in other liabilities is $786.6 million related to RenaissanceRe Holdings Ltd.'s redeemable noncontrolling interest in DaVinciRe Holdings Ltd.
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Copyright 2010 Bermudian Business /Deloitte. A p r i l / M ay 2 0 1 0 Bermudian Business 47
L I A B IL I T IE S A N D C A P I TA L & S U R P L US
DATA, FISCAL 2009
498,919
-
400,000
380,600
250,000
499,476
-
447,664
-
252,402
200,000
223,048
-
90,464
331,700
200,000
-
450,000
300,000
-
289,800
2,451,417
7,265,490
250,548
37,899
1,345,698
894,500
463,000
533,274
1,287,435
442,160
212,363
292,272
51,384
700,730
71,000
505,881
145,900
47,193
193,865
1,503,325
1,511,600
72,491
351,982
9,038,334
19,952,834
6,439,858
721,701
11,052,441
5,281,900
4,952,000
9,806,280
8,403,689
4,879,411
4,423,157
1,355,750
1,333,715
4,340,763
738,200
5,775,113
1,373,800
610,316
3,525,146
16,086,817
3,960,255
259,700
2,988,020
35,964,585
134,272,617
1,492
1,000
548
31,000
-
1,903
3,589
55,116
1,250
850
16,039
32,454
1,000
55,867
100
300
560
82,586
61,745
250,000
22,480
3,421
623,300
-
-
130
-
-
500,000
589,785
8,000
-
(20)
-
-
-
-
-
-
474,625
20,800
650,000
-
-
10
2,243,330
1,359,934
1,000,765
578,336
702,400
1,763,000
2,014,815
1,937,661
929,577
1,326,453
892,817
1,651,355
507,627
752,309
1,541,200
3,357,004
400,000
2,675,680
10,502,981
33,893,914
1,702,020
578,692
3,605,809
779,200
1,285,000
3,569,411
997,547
1,742,442
1,090,670
324,347
222,306
1,204,447
281,500
731,026
222,400
450,485
2,006,699
4,100,782
3,087,603
569,687
1,337,811
94,460
29,984,344
149,849
-
138,526
107,400
155,000
85,633
38,247
236,130
-
-
-
29,000
25,431
(2,900)
-
-
-
41,438
21,817
-
(1,187,559)
(161,988)
-
113
-
(5,100)
102,000
(671,518)
(250,531)
13,901
(81,976)
(6,976)
60,742
956,600
-
(32,300)
-
-
84,555
-
-
(4,851)
201,777
366,436
3,213,295
1,580,570
4,323,349
1,614,900
3,305,000
5,500,244
3,278,051
2,787,283
2,572,527
1,211,018
1,889,700
1,805,270
1,268,100
1,564,633
1,728,500
450,785
2,481,884
7,645,727
3,840,786
1,241,504
4,031,120
9,615,090
66,949,336
9,65
2,30
15,37
6,89
8,25
15,30
11,68
7,66
6,99
2,56
3,22
6,14
2,00
7,33
3,10
1,06
6,00
23,73
7,80
1,50
7,01
45,57
201,22
Debt Other Liabilities Total Liabilities Common Stock Pre ferred StockAdditional Paid
in Capital Retained Earnings
Unrealised InvestmentGains (Losses) Other
Total Capital &Surplus
Total LiabilCapital &
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AllamountsinU.S.$000s)
ratio
(xx to 1)
OPERATING DATA,
% change from
prior period
Loss Ratio (1)
Current Prior Current Prior
Expense Ratio (1)
Current Prior
Combined Ratio (1)
NetPremiumsWritten toCapital &Surplus
LossReserve toCapital &Surplus
Capital &Surplus
NetPremiums
Written
Loss Ratio (6)
(5 year average)
GrossPremiums
Written
57.40%
65.09%
64.97%
64.32%
65.80%
63.74%
62.90%
64.28%
67.18%
58.07%
69.95%
52.70%
60.40%
85.47%
55.84%
-114.73%
134.94%
63.90%
54.84%
19.72%
61.45%
66.16%
30.18%
20.16%
29.97%
36.60%
32.14%
30.21%
31.50%
30.69%
29.37%
37.39%
36.29%
44.20%
25.12%
25.59%
14.04%
3.91%
1.56%
21.90%
29.79%
37.47%
32.81%
32.14%
26.78%
34.37%
29.98%
36.12%
29.79%
24.85%
32.00%
29.45%
21.03%
31.30%
29.28%
22.60%
22.44%
23.32%
15.88%
8.11%
1.06%
23.30%
24.21%
37.46%
30.72%
28.79%
76.05%
57.46%
88.18%
96.90%
84.15%
81.21%
89.10%
83.75%
89.98%
74.73%
80.61%
86.00%
40.48%
96.87%
38.24%
-13.14%
59.77%
74.60%
45.28%
43.30%
68.94%
93.65%
84.18%
99.46%
94.95%
100.43%
95.59%
88.59%
94.90%
93.73%
88.21%
89.37%
99.23%
75.30%
82.83%
108.79%
71.71%
-106.62%
136.00%
87.20%
79.04%
57.18%
92.17%
94.94%
41.11%
39.37%
63.91%
88.02%
55.58%
51.21%
96.65%
57.62%
68.12%
65.44%
31.85%
100.62%
40.55%
57.17%
34.84%
4.40%
35.90%
51.65%
31.41%
29.04%
34.44%
49.34%
148.19%
24.42%
182.11%
198.35%
100.79%
119.34%
164.50%
113.27%
142.63%
39.69%
37.46%
138.17%
32.47%
290.84%
39.39%
76.09%
134.22%
162.53%
44.31%
6.80%
40.24%
216.57%
32.95%
13.75%
25.94%
19.37%
18.93%
23.30%
32.76%
26.28%
22.78%
22.82%
11.72%
31.82%
11.35%
22.21%
27.32%
38.20%
68.68%
82.08%
26.64%
17.79%
107.93%
45.31%
19.32%
13.37%
-1.52%
23.49%
0.05%
5.61%
21.32%
-9.99%
-24.56%
14.07%
18.76%
9.30%
0.12%
6.46%
11.27%
175.34%
24.01%
-1.02%
-10.88%
13.29%
12.12%
-17.33%
65.57%
44.24%
60.85%
61.25%
62.02%
59.31%
57.03%
62.58%
68.17%
42.39%
52.08%
49.20%
31.05%
83.73%
74.25%
202.77%
90.11%
63.82%
50.15%
23.12%
43.18%
72.25%
1,696,345
628,330
3,592,931
1,988,900
2,067,000
3,587,295
3,715,493
2,021,450
1,979,152
988,491
607,520
2,253,580
526,200
1,375,001
634,900
49,028
891,115
4,000,888
1,728,932
417,622
1,621,241
6,111,311
42,482,725
Allied World Assurance Company Holdings, Ltd
Amlin Bermuda Ltd.
Arch Capital Group Ltd.
Argo Group Ltd (4)
Aspen Insurance Holdings Limited (3)
AXIS Capital Holdings Limited
atlin Group Limited
ndurance Specialty Holdings Ltd.
verest Reinsurance (Bermuda), Ltd. (9)
lagstone Reinsurance Holdings Limited
Harbor Point Limited
Hiscox Ltd. (5) (11) (12)
ancashire Insurance Company Limited
Max Capital Group Ltd. (10)
Montpelier Re Holdings Ltd.
Oil Casualty Insurance, Ltd.
Oil Insurance Limited
artnerRe Ltd. (7)
RenaissanceRe Holdings Ltd.
okio Millennium Re Ltd.
alidus Holdings, Ltd.
XL Capital Ltd (8)
CedPremi
(375,2
(6,0
(829,8
(567,5
(230,0
(770,8
(547,2
(415,4
(226,8
(196,0
(5,6
(437,0
(12,0
(480,4
(32,7
(29,1
(52,1
(522,5
(57,0
(232,8
(1,367,5
(7,394,2
1)Loss,expense&combinedratioonlyfornon-lifebusiness.
2)ReturnonEquity=NetIncome/AverageofCYCapital&SurplusandPYCapital
&Surplus.
3)AspenInsuranceHoldingsLtd.'sreturnonequityiscalculatedbasedonnetincomeadjusted
forpreferencesharedividendsdividedbyaverageequityfortheperiodexcludingpreference
shares,theaverageaftertaxunrealizedappreciationordepreciationoninvestmentsandthe
averageaftertaxunrealizedforeignexchangegainsorlosses.
4)OnMarch14,2007(andasamendedandrestatedonJune8,2007),PXREGroupLtd.
(PXRE)andArgonautGroup,Inc.(ArgonautGrouporArgonaut)enteredintoamerger
agreement(theMergerAgreement)pursuanttowhichArgonautGroupbecameawholly-
ownedsubsidiaryofPXREonAugust7,2007(theMerger).PXREchangeditsnametoArgo
GroupInternationalHoldings,Ltd.upontheclosingoftheMerger.Immediatelyfollowingthe
Merger,ArgonautGroupspre-Mergershareholdersheldapproximately73%ofArgoGroups
shares,withPXREspre-Mergershareholdersretainingapproximately27%ofArgoGroups
shares.NotwithstandingthefactthatPXREwasthelegalacquirerundertheMergerand
remainedtheregistrantforSecuritiesandExchangeCommission(SEC)reportingpurposes,
theMergerwasaccountedforasareverseacquisitionwithArgonautGroupastheaccounting
acquirer.Consequently,thefinancialdatasubmittedforthissurveyfortheperiodpriortothe
MergerconsistsoftheresultsofArgonaut(theGAAPaccountingacquirer),whilethestockand
securityinformationrelatestoPXRE(thelegalacquirer).
(5)HiscoxLtd.'sreturnonequityiscalculatedbasedonadjustedopeningequitywhichtakes
intoconsiderationtheweightedaverageofcapitalfromshareoptionexerciseslessweighted
averagepaymentofcapitaltoshareholdersbydividendandtreasurystock.
(6)Lossratio(5yearaverage)=sumoflossandLAE(fiveyears)/sumofpremiumsearned(5
years).Forthoserespondentsthatprovidedlessthanfiveyearsofdata,theaveragehasbeen
calculatedoverthenumberofperiodsprovided.
(7)PartnerReLtd.'sratiosexcludelifebusiness.
(8)XLCapitalLtdunderwritingincome/(loss)ongeneraloperationsexcludeslifeandfinancial
operations.
(9)AllEverestReinsurance(Bermuda),Ltd'sfinancialinformationprovidedinthissurveyis
unaudited.
(10)MaxCapitalGroupLtd.'sratiosincludelong-termlifeandannuitybusiness.
(11)HiscoxLtd.incomestatementtranslatedfromGBPtoUSDusingaveragerateof$1.57forthe
relevantyear.
(12)HiscoxLtd.expenseratioandcombinedratioexcludingFXimpactis40.4%(2008:38.9%)
and82.20%(2008:91.6%),respectively.
45.87%
37.30%
58.21%
60.29%
52.00%
51.00%
57.60%
53.06%
60.61%
37.34%
44.32%
41.80%
15.36%
71.28%
24.20%
-17.05%
58.21%
52.70%
15.49%
5.83%
36.13%
61.51%
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Copyright 2010 Bermudian Business /Deloitte. A p r i l / M ay 2 0 1 0 Bermudian Business 4
CURRENT PERIOD
FISCAL 2009
Net PremiumsWritten
1,321,125
622,305
2,763,112
1,421,400
1,837,000
2,816,429
3,168,286
1,606,050
1,752,317
792,469
601,873
1,816,526
514,200
894,520
602,200
19,830
891,115
3,948,704
1,206,397
360,578
1,388,358
4,743,712
35,088,506
Change in UPR
(4,233)
(39,562)
79,633
(6,500)
(14,000)
(24,665)
(250,424)
27,142
(37,063)
(34,014)
(53,423)
(92,506)
24,100
(60,164)
(29,000)
(3,955)
-
171,121
67,419
(3,892)
61,219
408,027
185,260
PremiumsEarned
1,316,892
582,743
2,842,745
1,414,900
1,823,000
2,791,764
2,917,862
1,633,192
1,715,254
758,455
548,450
1,724,020
538,300
834,356
573,200
15,875
891,115
4,119,825
1,273,816
356,686
1,449,577
5,151,739
35,273,766
Losses& LAE
604,060
217,354
1,654,674
853,100
948,000
1,423,872
1,681,099
866,640
1,039,689
283,185
243,074
727,252
82,700
594,692
138,700
(2,707)
518,734
2,295,296
197,287
20,784
523,757
3,168,837
18,080,079
Commissions& Brokerage
148,847
92,101
490,098
318,800
334,000
420,495
585,634
267,971
480,581
136,471
117,734
402,915
108,400
96,874
80,500
621
14,636
885,214
189,775
53,633
262,966
775,869
6,264,135
OtherUnderwriting
Expenses
248,592
25,360
361,907
199,100
252,000
422,762
464,538
233,240
23,200
147,138
81,318
176,825
26,800
116,657
-
-
(741)
-
189,686
80,030
212,605
879,727
4,140,744
UnderwritingIncome/(Loss)
315,393
247,928
336,066
43,900
289,000
524,635
186,591
265,341
171,784
191,661
106,324
417,028
320,400
26,133
354,000
17,961
358,486
939,315
697,068
202,239
450,249
327,306
6,788,808
Investment
IncomeEarned
(excludingrealized
gains/losses)
300,675
32,788
390,131
145,500
248,000
464,478
187,239
284,200
277,039
28,531
70,653
118,912
52,300
246,255
81,000
23,047
117,096
596,071
323,981
28,834
118,773
1,319,823
5,455,326
Realized Gains/(Losses)
76,775
(77,608)
77,449
(16,700)
11,000
(311,584)
232,020
(13,948)
6,265
50,921
(314)
30,981
22,400
(1,193)
30,800
(45,097)
(198,817)
171,265
82,069
-
(11,543)
(955,084)
(839,943)
InterestExpense on
Debt
(39,019)
-
(24,440)
(25,500)
(16,000)
(32,031)
-
(30,174)
(954)
(12,105)
(1,428)
(8,310)
-
(21,339)
(26,300)
(16,922)
(320)
(28,301)
(15,111)
-
(27,086)
(216,504)
(541,844)
Other Income(Expenses)and (Taxes)
(46,937)
26,484
71,895
(29,700)
(50,000)
(147,612)
(53,447)
30,685
(12,386)
(16,816)
(8,409)
(255,907)
(5,600)
(7,007)
(135,100)
(9,722)
(16,196)
(650,365)
(237,761)
(30,551)
282,218
(400,550)
(1,702,784)
Net Income/(Loss)
606,887
390,971
851,101
117,500
474,000
497,886
508,903
536,104
441,748
242,192
250,126
440,380
389,500
246,215
463,500
124,616
1,100,270
1,536,854
838,858
200,522
897,407
74,991
11,230,531
RetuEqu
21
26
21
7
15
10
24
21
18
22
13
30
32
17
30
32
55
25
24
17
31
0
Change inUnrealized
Gains/(Losses)
-
161,379
-
-
(8,000)
-
-
-
-
-
83,300
137,676
-
3,366
159,100
155,349
840,021
508,869
(11,388)
-
84,796
-
2,114,468
ComprehensiveIncome/(Loss)
787,952
390,971
207,903
253,600
591,700
1,328,352
620,851
754,164
721,755
243,487
250,126
331,126
392,300
317,045
463,800
124,616
1,100,270
1,598,973
923,407
187,490
900,414
2,297,451
14,787,753
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COMPANY OFFICERS** As of year end 2009
Allied World Assrace Compay Holdigs, Ltd
Amli Bermda Ltd.
Arch Capital Grop Ltd.
Argo Grop Ltd
Aspe Israce Holdigs Limited
AXIS Capital Holdigs Limited
Catli Grop Limited
Edrace Specialty Holdigs Ltd.
Everest Reisrace (Bermda), Ltd.
Flagstoe Reisrace Holdigs Limited
Harbor Poit Limited
Hiscox Ltd.
Lacashire Israce Compay Limited
Max Capital Grop Ltd.
Motpelier Re Holdigs Ltd.
Oil Casalty Israce, Ltd.
Oil Israce Limited
ParterRe Ltd.
ReaissaceRe Holdigs Ltd.
Tokio Milleim Re
Valids Holdigs, Ltd.
XL Capital Ltd
Scott Carmilani
Stuart MacKellar
Constantine Iordanou
Mark Watson
Christopher O'Kane
John Charman
Stephen Catlin
David S. Cash
Mark de Saram
David Brown
John Berger
Bronek Masojada
Greg Lunn
W. Marston Becker
Christopher Harris
Robert D. Stauffer
Robert D. Stauffer
Patrick Thiele
Neill Currie
Tatsuhiko Hoshina
Edward J. Noonan
Michael S. McGavick
Frank D'Orazio
Robert Wyatt
^
^
Kate Vacher (Underwriting Director)
^
Paul Brand
^
^
Guy Swayne (International) & Gary Prestia (North America)
Greg Richardson
Robert Childs
Charles Mathias
Angelo Guagliano
David Sinnott
Jerry Rivers
George F. Hutchings
Costas Miranthis (Global (Non-U.S)), Tad Walker (U.S.)
Kevin O'Donnell
Jerome Faure
Conan Ward
N/A
Joan Dillard
Elizabeth Murphy
John C.R. Hele
Jay Bullock
Richard Houghton
David Greenfield
Benjamin Mueli
Michael J. McGuire
^
Patrick Boisvert
Andrew Cook
Stuart Bridges
Elaine Whelan
Joseph Roberts
Michael Paquette
Ricky E. Lines
Ricky E. Lines
Albert Benchimol
Jeffrey Kelly
Shumpei Takizawa
Joseph E. (Jeff) Consolino
Simon Rich
Chief Executive Officer Chief Underwriting Officer Chief Financial Officer
HOW THE SURVEY WAS DONE
For this 16th Annual Bermudian Business/
Deloitte Bermuda Insurance Survey, financial
data was obtained from Bermuda-based
insurance and reinsurance companies with
fiscal years ending in 2009.
Deloitte compiled the financial data provided
by survey participants. Industry commentary
and analysis contained in the survey was prepared
by Standard & Poors based upon the compiled
financial data.
The 16th Annual Bermudian Business/
Deloitte Bermuda Insurance Survey will
go online at both the Bermudian Business
and Deloitte websites. Find the sites at
www.bermudianbusiness.com and www.deloitte.bm.
^ Information not provided by respondent
past year insurance broker Willis Group
redomiciled to Ireland.
Among Bermuda (re)insurers rated by
Standard & Poors, we believe a change in U.S.taxation, if enacted, would have a modest to
moderate impact on Bermuda (re)insurers tax
position. In addition, because most Bermuda
writers are already global in nature with
offices and staff in several locations around
the world, a potential redomestication of any
of these players would likely be neutral to
their ratings since it likely would have no
significant impact on their business. This
also helps explain why management teams of
companies participating in our survey ranked
Bermuda Market Presence and Regulation
as less pressing concerns among their top 5
strategic challenges in the near term comparedto issues such as pricing and growth vs.
profitability. Bermuda would invariably
suffer the greatest impact if more Bermuda
(re)insurers redomesticated elsewhere, given
the importance of the (re)insurance market as
part of its economy.
COnCLuSIOn
We believe Bermuda (re)insurers are likely to
see weaker operating performance in 2010
compared to 2009. Key factors contributing
to this in our view are the significant losses
incurred by companies on the island due to the
Chilean earthquake and Windstorm Xynthia
during the first quarter, weaker pricing on
most property and casualty (re)insurance lines,
and the expectation of a more normalized
level of investment gains/losses in 2010. In
addition, Bermuda writers remain exposed to
potential further catastrophe losses throughthe remainder of 2010, which could lead them
to exceed their catastrophe budgets and miss
their earnings targets for the year.
Given the severity-driven portfolios of
(re)insurance players on the island, we expect
their earnings to be volatile on a year-over-yearbasis. But over the long run, these companies
should be able to compensate their shareholders
for this increased risk through above-average
returns. Bermuda writers currently have many
of the right tools to help them accomplish this
goal. Among them are their strong balance
sheet position, enhanced competitive position
through their expanding global platforms,
increasingly sophisticated risk management
tools, and compensation systems that place
emphasis on bottom line profitability. The jury
is still out, however, as to whether management
teams on the island will succeed in leveraging
these strengths against the challenges they faceto produce much needed strong, risk-adjusted
profits over the long term.