Benfield warns of 2007 capacity squeeze

Bermuda reinsurers have forecast that rates will continue to harden through the year and a capacity squeeze could even spread beyond the Florida market into other territories in 2007.Increased demand, revised catastrophe models and more stringent capital constraints continue to squeeze capacity, according to the most recent Bermuda Quarterly Report from Benfield.The 18-page report observed that total net income for Bermuda’s 16 leading reinsurers was up 21% over 2005 Q1 to US$2.3 billion. Premium income, meanwhile, decreased 5% to US$16.5 billion, the first decrease in Q1 premium volume since 2001.The weighted average combined ratio decreased from 91.6% to 89.2%. “These top line reductions are attributable to more disciplined underwriting, reduced capacity due to stricter capital requirements by rating agencies, and the transfer of business to sidecars,” according to Christopher Klein of Benfield’s Industry Analysis and Research team. “The relatively disappointing 1 January 2006 showings for the 2005 [Bermuda] start-ups look likely to be reversed,” the report notes, “but the enforcement of reduced underwriting gearing suggests that their contribution to capacity, whilst welcome, may be modest.”Meanwhile, underwriters and investors alike will be hoping for a calmer summer notwithstanding predictions for another hurricane season of above-average activity.”