While some industry analysts see recent Florida insurance legislation as a death blow aimed at the heart of the Bermuda reinsurance marketplace, executives with mixed books of insurance and reinsurance contend it's just a curve ball that the market can still hit out of the park.

Indeed, with a year of record earnings under their belts, executives of 11 publicly traded Bermuda companies spent more time talking about how they'll adjust their swings around both Florida and a softening market to deliver targeted revenues and profits in 2007 than celebrating their good fortune during earnings presentations earlier this month.

Approaches they described include:

o Increased focus on initiatives outside the U.S. property-catastrophe reinsurance market--in Latin America and Asia.

o Increased appetites for the U.S. excess and surplus lines business.

o Options to wind up sidecars set up last year.

Several said they would also mine growth opportunities around and above the Florida Hurricane Catastrophe Trust Fund, while being careful not to give competitors a road map as to exactly where those prospects might be.

Just days before Bermuda companies started to publish earnings figures, Florida Gov. Charlie Crist signed a law that industry analyst V.J. Dowling later predicted would mean the removal of at least $1 billion in premiums from the property-catastrophe reinsurance market, along with a quarter of its profits.

Mr. Dowling, managing partner of Dowling & Partners Securities in Hartford, Conn., made his comments during a teleconference hosted by New York-based reinsurance brokerage Guy Carpenter.

David Priebe, head of the specialty practice group of Guy Carpenter, led off the discussion highlighting a provision of the law that roughly doubles FHCF coverage. The coverage--which was for 90 percent of $18 billion in industry hurricane losses in excess of $6 billion--has expanded to a new maximum structure of 90 percent of $37 billion in excess of $3 billion, he noted.

Simplifying the math, Mr. Dowling said the aggregate limit covered by the fund has soared from $16 billion to $33 billion. He noted, however, that not all of the difference between the two figures represents aggregate limits taken out of the reinsurance market, since neither Citizens Property Insurance Company (the state's insurer of last resort) nor State Farm buy reinsurance.

Estimating, then, that only $8 billion in limits will actually be moved out of the reinsurance market and into the Fund, he said that at prevailing rates-on-line (premium-to-limit ratios) in the 15-to-20 percent range, this would still take $1.2-to-1.6 billion in premiums--or perhaps even as much as $2 billion--out of the $10-to-12 billion property-catastrophe reinsurance marketplace, the bulk of which sits in Bermuda.

The profit impact will be even worse, he said, noting that reinsurers generally expect profits from Florida that are higher than from any other market in the world. "It is not inconceivable to talk about 25-to-30 percent of the expected profitability of the worldwide property-cat market that has just been eliminated," he said.

Going on to discuss the ripple effects throughout the competitive worldwide property market, he said that reinsurance pricing, already under downward pressure before, is now under more intense pressure.

Days later, Joseph Taranto, chairman and chief executive officer of Everest Re, told analysts not to expect premium growth for his company in 2007, anticipating "flat-to-down" premium levels overall.

"The Florida legislation is a curveball for our marketplace," Mr. Taranto said. For Everest Re, the law will mean about $50 million of excess-of-loss reinsurance business lost, he said--adding, however, that Everest also writes nearly $200 million of property pro-rata in Florida which primary insurance clients may still purchase.

Quoting Mr. Dowling, who said that Florida lawmakers had "decided to play Russian roulette with the state's insurance market," Mr. Taranto said: "I agree."

"Moving away from the Florida catastrophe market, I am happy to note that reinsurance has not been legislated away and replaced by structures with an inability to pay in other product lines, in other states and in other countries," he continued.

He predicted that his company's U.S. insurance book will continue to grow (on the strength of specialty program and Florida excess and surplus commercial property initiatives begun in 2006), but that casualty reinsurance premiums will likely fall (reflecting declines in underlying primary insurance rates).

At RenaissanceRe, where catastrophe premiums make up a larger proportion of overall writings, CEO Neill Currie was gentler to Florida politicians and equally optimistic about opportunities in and outside the state.

"We recognize that the citizens of Florida and their elected officials are confronted with a difficult situation," he said. "Decisions made by the legislature reflect an understandable desire to ease the burden of increased insurance premiums for property owners in the state."

He added that "this situation has evolved over the past few years and will continue to evolve. [It] will take many, many years to settle out." He went on to point out to an exercised questioner that it wasn't long ago that queries about possibly negative reinsurer impacts were raised with respect to the California Earthquake Authority.

Still, for the near term, RenRe did lower its annual catastrophe premium forecast from a previous indication of 15 percent growth to a 5 percent drop for 2007. Chief Financial Officer Fred Donner attributed the changed view more to a weaker-than-expected Jan. 1 renewal season than to Florida legislative actions, however.

The revised estimate, he said, considers shifts in buying patterns--with insurers dropping bottom layers and buying new limits at the top of their programs--as well as rate deterioration for international renewals and reduced demand in the retrocession market.

Addressing concerns about Florida, Kevin O'Donnell, president of Renaissance Reinsurance Ltd., noted that specialty insurance operations in the group complement the reinsurance operations he heads. "We've built a flexible structure that allows us to deploy capacity to traditional excess-of-loss, quota-share or primary business--and tools to determine which of these options provide the greatest returns," he said.

In addition, he noted that the company sponsored two sidecars last year--Starbound Re and Timucuan Re--to help ease capacity issues in Florida at midyear 2006. The latter has already been unwound, he said, noting Starbound expires at the end of May, giving RenRe flexibility to increase the business it retains for its own books.

Mr. Currie said the sidecars were an example of how the company has strived to do "the right things over time to build strong customer relationships."

Now facing more competitive conditions in the wake of the Florida law change, he said that having moved quickly to help customers last year, he believes the company can "rely on strength of these relationships in order to maintain our role as a meaningful provider of reinsurance capacity to that market."

Executives at other companies with even more diversified insurance and reinsurance platforms still had to address questions about how their companies will grow premiums and profits in softening markets in both sectors, being fueled further by the earnings-driven spike in capital in 2006.

For example, ACE Ltd. CEO Evan Greenberg said that "we are in that part of the cycle where revenue growth in many classes is more for vanity than a reasonable underwriting profit. We will not play that game."

Highlighting his firm's geographic reach, he shared details of a recent trip to Latin America, noting that in Brazil and Mexico, ACE is an established property-casualty writer, while also boasting large accident and health businesses targeting a growing middle class in those countries. "We see significant opportunities to expand our business," he said.

At XL Capital, CEO Brian O'Hara said that "we have a lot of organic opportunities in the largest market--the United States," noting that XL is presently more developed in Europe, separating it from the pack of Bermuda players. Some U.S. segments are stronger than others, he added, citing surplus lines as "a very fertile place to grow."

Internationally, he said XL is seeking a China license, and in India, where XL has 200 employees, the restricted market may open up, allowing insurers domiciled outside the country to own 50 percent of ventures in place there--an expansion from the present level of just 20 percent.

Henry Keeling, XL's chief operating officer, said insurance market conditions were better than expected in Europe for Jan. 1--an important renewal date there--citing increased property reinsurance costs in 2006 and some prominent European directors and officers losses causing the pace of price declines to slow.

In the catastrophe reinsurance market, he said the market continues to exercise some discipline--a view shared by John Charman, CEO of Axis Capital.

"New capital committed to reinsurance since 2001 is substantially more disciplined than that committed in years prior," Mr. Charman said. "It is substantially deployed to cat-exposed business," which relies on technical models and risk management practices, "where pricing is based on exposure," he added.

Asked specifically about the "Class of 2005" start-ups, Kenneth LeStrange, CEO of Endurance, said that while they were clearly "more visible" this Jan. 1 than last, they too showed a "reasonable level of discipline" as they assembled portfolios in offshore energy and cat-related lines.

But if cat-pricing has peaked, their behavior over the next six months bears watching, he said, wondering out loud whether they will be aggressive in other lines as they seek to diversify. Those desiring to go public "clearly are going to have to do more than they've done so far," he said, speculating that merger activity will heat up and that several start-ups will increase business activities onshore.

Already three recent start-ups--Validus Re, Flagstone Re and CastlePoint--have filed initial public offering documents.

Private investor appetites remained strong in late 2006 and early 2007, with at least five sidecars announced and two full-fledged companies--Aeolus Re, targeting cat retrocessional business, and Ironshore, focused on U.S. coastal property insurance.

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Special Reports /

Florida Cat Law Seen As 'Curve Ball,' Not Death Blow For Bermuda Reinsurers

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