Bermuda insurers ACE and XL both reported record net income of around half-a-billion dollars for the third quarter last night, in contrast to whopping storm-driven losses last year.
For ACE, the exact third-quarter net income figure was the higher of the two, coming in at $578 million, or $1.72 per share, compared with a net loss of $112 million, or 43 cents per share in last year's third quarter.
XL's third-quarter income was $415.8 million, or $2.32 per share, compared with a loss of $1.05 billion, or $7.53 in third-quarter 2005.
During a conference call this morning, Evan Greenberg, ACE's chief executive officer, said growth in property-casualty underwriting profits and investment income both contributed to ACE's favorable result.
For the quarter, ACE's combined ratio came in at 85.7, down from over 116 in third-quarter 2005, and pre-tax investment income grew 29 percent to $414 million.
"We're frankly experiencing the other side of volatility–the positive side," Mr. Greenberg said. "While it should go without saying, this year's light cat activity does not change our view of cat risk nor our appetite for this class. In our judgment, that would be foolish," he said.
At XL, investment income was an important contributor to earnings, growing 41 percent to $518.3 million before taxes. The third-quarter combined ratio for property-casualty operations (insurance and reinsurance combined) at 86.8 compared favorably to last year's 182.2.
While ACE reported 4 percent net premium growth for its property-casualty business overall in the quarter, XL's top line shrank 9 percent on a net of reinsurance basis. XL cited corporate risk management initiatives and competitive casualty market conditions to explain the premium decline.
Referring to overnight commentary from analysts about XL's lack of growth, Chief Operating Officer Henry Keeling said that he found such comments "interesting given current market conditions," and stressed that "XL's focus is on underwriting discipline, risk management and, most importantly, bottom-line risk-adjusted returns."
He added that new initiatives like the launch of excess and surplus business in the United States, a joint venture in Brazil, and a foray into the private directors and officers business are among the areas in which XL is growing.
Both Mr. Keeling and Mr. Greenberg commented that there was nothing dramatic about market conditions to report.
Mr. Keeling said pricing has generally been attractive and that he expects it to remain so, adding that pricing pressures–most notable on European business and U.S. casualty–are not enormous.
"We don't think we're at the point where we're reaching the edge of a cliff," he commented, noting that he's seen the "odd case" of a competitor being aggressive on an individual piece of business, but there isn't evidence of large wholesaler reductions.
In fact, Mr. Keeling said, professional liability pricing is holding up better than he would have expected going into the year, and he expects a firming on European property reinsurance business come Jan. 1.
Mr. Greenberg made a similar prediction for the firming of international cat-exposed pricing, and said there were no real changes evident in market conditions overall compared to the two prior quarters.
For noncatastrophe business, "rates continue to soften at roughly the same pace we've been experiencing throughout the year," he said.
In the absence of fourth-quarter catastrophes, Mr. Greenberg said growth in capital will fuel further softening in 2007, but "I see no signs leading me to believe that this will turn into undisciplined free-for-all."
"On the other hand, there isn't a whole lot of room to reduce pricing and still earn a reasonable return on equity," he concluded.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.