Bermuda P&C industry posts good results, but fundamentals “deteriorating”

Bermuda-based property and casualty (re)insurers have bounced back from two years of unprecedented losses to post strong results in 2006 and 2007, but “industry fundamentals are expected to continue deteriorating,” A.M. Best says in a special report.The Bermuda P&C sector posted a net income in 2007 of about US$11.4 million, down almost 1% from its 2006 profit of US$11.48 million.The industry’s combined ratio improved from 83.6% in 2006 to 82.9% in 2007.The industry’s return on equity slipped from 20.5% in 2006 to 15.9% in 2007.Overall, the industry’s balance sheets are in the best shape they’ve been in years,” A.M. Best reports.Nevertheless, “the longer-term viewis that industry fundamentals will continue to deteriorate, barring any industry-changing event.”A.M. Best notes there is pressure on companies to reduce rates and loosen terms, and cedants are purchasing less reinsurance, making the stability of the industry’s earnings uncertain. “Compounding these factors are significant capacity in the markets and pressure to deploy capital with fewer opportunities,” A.M. Best noted.The capacity of the Bermuda market, expressed as shareholders’ equity, increased to more than US$75 billion in 2007. This includes the US$10 billion in new capital contributed by the 2005 class of reinsurers.