Insurer catastrophe losses exceeding $8.4 billion haven't stopped investors from putting nearly $6 billion of new capital into 14 existing Bermuda companies, according to a new report from Moody's Investors Service.
The report released yesterday, titled "Bermuda P-C Companies Recapitalize Following Heavy Catastrophe Losses," also lists seven new start-up companies that are being organized, adding more than $5 billion in new capacity.
Moody's noted that the $6 billion of capital that has been invested in 14 existing publicly traded companies replaced roughly 71 percent of third-quarter catastrophe losses, with two companies–ACE and Max Re–raising capital amounts that were more than 200 percent of after-tax catastrophe losses.
Moody's said that while the willingness to provide new capital in the wake of large losses repeats a historical pattern that was seen after Hurricane Andrew and the 9/11 attacks, the rating agency does not assume that investors will continue to recapitalize firms after large loss events.
"At some point, investors may well ask why they should reward companies with fresh capital when risk-adjusted returns on capital may not be sufficient given the volatility created by the occasional (or not so occasional) large catastrophe losses," Moody's analysts commented in the report.
The report includes a chart that shows that individually, for the 14 existing companies, the ratio of net after-tax catastrophe losses to shareholders' equity on June 30 ranged from 7 percent (for ACE Limited) to 66 percent (for Montpelier).
As for new players, they include:
o Harbor Point Ltd, formed by Chubb and Stone Point .
o Amlin Bermuda, formed by Lloyd's insurer Amlin Plc.
o Validus Holdings, formed by a consortium of private equity companies.
o Lancashire, which will target energy and marine business.
o A new venture incorporating runoff company Rosemont Re.
o A new venture to which XL will cede portions of its property catastrophe and retrocessional business.
o New Castle Reinsurance Company Ltd., formed by hedge fund Citadel Investment Group.
Moody's also noted that it has taken negative rating actions against seven of the 13 Bermuda companies it rates, including the downgrade of Renaissance Re to A2, and placement of Aspen, PXRE, Montpelier and XL ratings on review for possible downgrade.
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