Although Bermuda insurers and reinsurers were hit with more than $3.5 billion in catastrophe losses from worldwide disasters in 2010, roughly $2.7 billion in favorable prior-year loss development helped cushion the blow, according to NU tallies.

Now with Japan earthquake loss totals yet to be determined, but close to $1 billion estimated in other catastrophe losses estimated by Bermuda companies for the 2011 New Zealand earthquake and floods in Australia, it seems less likely that reserve takedowns at year-end 2011 will have a similar effect.

Last week's NU featured a Bermuda Market Update, which included a compilation of year-end income and underwriting results. (See NU, March 14 edition, “Nimble Bermuda Players Seize One-Off Opportunities, Rework Long-Term Plans,” page 20.) The financial-results summary revealed that combined ratios for a group of 17 Bermuda companies averaged 91.5 for 2010—a deterioration of roughly 9 points from the 82.6 overall combined ratio reported for the same group in 2009.

Separately, NU has added up both the catastrophe-loss figures and loss-reserve takedowns for 16 of the groups that reported them in their 2010 year-end financial reports and filings with the SEC.

According to these reports, catastrophe losses for 16 Bermuda groups analyzed by NU totaled $3.6 billion in 2010, adding 11.2 points to the overall combined ratio for the cohort, while most companies reported much smaller levels of profit damage from cats in 2009.

The groups suffered 2010 losses from a first-quarter earthquake in Chile, the Deepwater Horizon disaster, a third-quarter New Zealand quake and fourth-quarter floods in Australia.

These same companies reported prior-year reserve takedowns of $2.7 billion, shaving more than 8.4 points off the overall 2010 combined ratio.

In 2009, the prior-year reserve benefit was lower, coming in at $2.5 billion, representing 7.7 combined ratio points.

Among the classes of Bermuda companies, the “Class of 2001” reported the largest combined-ratio impact from favorable prior-year loss development—9.8 points, but this was also the only class to see a smaller benefit in 2010 than in 2009, when these “Class of 2001” companies reported 10.6 points of favorable prior-year development.

Three “Class of 2005” companies—Flagstone Re, Validus and Lancashire Insurance—formed in the wake of Hurricanes Katrina, Rita and Wilma, reported the least amount of prior-year reserve benefit—just 8.3 points in 2010 and 6.1 points in 2009.

Older Bermuda companies included in the group tracked by NU suffered a 16-point combined ratio hit from cat losses in 2010, but favorable development shaved 7.9 points off their 2010 combined ratios overall, compared to 6.3 points in 2009.

Prior to the recent earthquake and tsunami event in Japan, Bermuda reinsurers were already releasing estimates of 2011 cat losses from this year's New Zealand quake, Cyclone Yasi and floods in Australia. The range of preliminary estimates of losses from those events announced by 11 Bermuda companies is $870 million to $1.3 billion.

Special Reports /

2010 Reserve Takedowns Cushion $3.5B Cat-Loss Hit To Bermuda Reinsurers

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