Bermuda's Reinsurers Hit Hard By 2005 Hurricanes

by Mike Godfrey, Tax-News.com, Washington

31 March 2006

Bermuda's reinsurers have been hit hard financially by the three hurricanes that struck the Gulf of Mexico and the southern United States in 2005, according to a report by Benfield, a leading reinsurance company.

Following losses of US$11.3 billion from hurricanes Katrina, Rita and Wilma, Bermuda's reinsurers registered a total net loss of US$2.8 billion in 2005 compared with a profit of US$5.5 billion the previous year, revealed Benfield's latest Bermuda Quarterly report, which compiles and shares information on Bermuda's 16 leading reinsurers.

In 2005, eleven Bermuda reinsurers reported losses compared with only one in 2004, while the average return on equity for Bermuda reinsurers sank to a negative 6.0% from a positive 13.1% in 2004 and a peak of 19.1% in 2003.

Balance sheets were also hit hard by the 2005 storm losses, but the Benfield report stated that capital replenishment was "swift and outpaced losses" leaving total capital up 5% to US$47.2 billion.

After hurricane Katrina US$18.4 billion of new capital flowed into Bermuda to replenish battered balance sheets and exploit the expected price increases and capacity shortages, with 53% going to the established companies, 40% to start-ups and the remainder into side-cars, the report stated.

Since Hurricane Katrina five Bermudian companies have either ceased underwriting or re-orientated their business.

"Bermuda's underwriters were chastened by the 2005 hurricanes," observed Chris Klein from Benfield's Industry Analysis and Research team, adding that: "companies reacted by reducing their risk exposure, changing their catastrophe models and increasing their reinsurance protection."

Casting an eye to the future outlook of the reinsurance industry in Bermuda, Mr Klein added that: "Reinsurance capacity is expected to tighten for the 1 July renewals as the recalibration of catastrophe models, a shrinking appetite for peak exposures and increased cost of capital exert further sustained upward pressure on pricing."

Recommended