All seven publicly traded Bermuda insurers and reinsurers that reported third-quarter earnings this week delivered strong underwriting results, but for XL Capital, the good news was overshadowed by investment woes.

Third-quarter income for XL was $328 million, or $1.82 per ordinary share, compared with net income of $415.8 million, or $2.32 per ordinary share, for the quarter ended Sept. 30, 2006.

Net realized losses on investments of $160.2 million brought down the bottom-line figure for this year's third quarter, while in third-quarter 2006, XL only recorded $52 million in realized losses.

During a conference call yesterday, XL Chief Investment Officer Sarah Street noted that the $160 million in realized losses included an “other-than-temporary-impairment” charge of $110.9 million primarily related to deterioration in the credit markets. Accounting rules require impaired assets to be written down to market value, even when markets may be undervaluing them, she said.

Asked what events might cause XL to take further impairment changes, Ms. Street said that after careful analysis of the entire investment portfolio, “we think we've taken our pain.”

Among other Bermuda companies to report earnings this week, PartnerRe also disclosed an investment charge–of $25 million against net income related to the company's investment in a financial guarantor named Channel Re. PartnerRe has a 20 percent ownership stake in Channel Re.

PartnerRe CFO Albert Benchimol said the charge reflected an anticipated unrealized loss that Channel Re will record on its credit derivative portfolio.

Derivatives accounting requires companies to mark their derivative investments to market levels even if they don't expect losses will actually be realized, Mr. Benchimol said, suggesting the unrealized loss will eventually be reversed on Channel Re's books.

PartnerRe's third-quarter income, though negatively impacted by the $25 million charge, was helped by developments on non-life loss reserves, Mr. Benchimol also reported. He said $89 million of reserves were released for prior years and $27 million for prior quarters of 2007, compared with a total release of only $79 million for both prior years and prior quarters in third-quarter 2006.

Overall, PartnerRe reported an 11.5 percent jump in third-quarter net income–to $262.9 million, or $4.44 per share.

Other Bermuda companies reporting this week were Everest Re, IPC Holdings, ACE Limited, Platinum Underwriters and Montpelier Re.

The biggest of the group, ACE Limited, saw third-quarter income climb 13.5 percent to $656 million, with a 19 percent jump in investment income and favorable prior-year development of $70 million helping to drive the result.

As a group, the Bermuda companies saw little overall change in premiums written or in combined ratios compared to last year's third quarter.

Gross premiums for the seven reporting companies fell less than 1 percent for the group, net premiums were flat, and the combined ratio average was roughly 85 in third-quarter 2007 and third-quarter 2006.

Through nine months, an average combined ratio of 85 was about 1 point better than last year's 86 average for the group, and gross premiums were down less than 1 percent.

Four of the seven companies–ACE, XL, Everest and Montpelier–reported double-digit increases in nine-month net income, while IPC reported a 24 percent decline related to catastrophe losses from floods in the U.K. and Australia and to losses from Winter Storm Kyrill in Europe.

Special Reports /

XL Only Bermudian With Income Drop So Far

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