Bermuda reinsurers lose US$11.3 billion after hurricanes

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, according to the latest Benfield Bermuda Quarterly report.Eleven Bermuda reinsurers reported losses in 2005, compared with only one in 2004, the report notes. The average return on equity for Bermuda reinsurers sank to -6% from +13.1% in 2004 and a peak of 19.1% in 2003. Benfield, which reviews the results of Bermuda’s top 16 reinsurers on a quarterly basis, observed gross premium written increased by 6% in 2005 to US$57.1 billion. Even so, growth rates more than halved for the second year in succession. “The average combined ratio rose from 96.3% in 2004 to a record high of 118.0% in 2005, with only two companies reporting combined ratios below 100%,” Benfield noted. Capital replenishment after the 2005 storm damage was swift and outpaced losses, leaving total capital up 5% to US$47.2 billion, Benfield reported. US$18.4 billion of new capital flowed into Bermuda after hurricane Katrina. Fifty-three per cent of that money went to established companies, 40% went to start-ups and the remainder flowed into side-cars.”Since Hurricane Katrina, five Bermudian companies have either ceased underwriting or re-orientated their business,” Benfield noted. “Bermuda’s underwriters were chastened by the 2005 hurricanes,” Chris Klein, a representative of Benfield’s industry analysis and research team, said. “Companies reacted by reducing their risk exposure, changing their catastrophe models and increasing their reinsurance protection.”The 2006 renewal witnessed robust price increases in loss-affected areas, but elsewhere expectations were tinged with disappointment as the response was more moderate. 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.”