Bermuda reinsurers should record another year of strong results in 2008 and produce mid- to high-teens return on equity despite lower premium volume, according to an investment bank analysis.

Bank of America's equity research division said it is reiterating a positive view of the reinsurance sector after meeting the management teams of most of the companies it studies. “Most are confident they can write a reasonable volume of both property and casualty business in 2008 that will generate targeted returns,” the bank said.

The analysis said that premium rates on U.S. catastrophe reinsurance are expected to decline by 10 percent or less after rising significantly last year.

In some cases the rate decreases will be offset by reductions in exposure. Of nine companies analysts met with, only one was disappointed by current property market conditions, Bank of America said.

The analysis found less of a consensus on U.S. casualty business with some companies expecting similar decreases as on property business, while others have put through rate increases on quotes. Benign loss cost trends will somewhat offset the impact of declining rates on line, the bank advised.

According to the analysis, reinsurers so far are remaining disciplined in their underwriting and pricing, but it was noted that this will be a late renewal season. Despite some reinsurance brokers' attempts to secure rate decreases of 30 percent, reinsurers are holding firm declining to write business with that magnitude of rate reduction, the study found.

However, Bank of America said this will be a late renewal season with only 25 percent of firm orders so far.

It said reinsurance buyers are focusing on price this renewal season, and terms and conditions generally are holding. Some reinsurers are charging more for more liberal terms, it was noted.

Bank of America said it is maintaining a positive view on the sector and that p-c reinsurers continue to trade at an attractive valuation.

The bank said strong underwriting margins on property and casualty reinsurance and improved risk management should drive book value growth. The industry has a strong reserve position, and investment income is growing.

Special Reports /

Bank Of America Upbeat On Bermuda Reinsurers

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