More Bermuda Stock Buybacks Foreseen

More Bermuda reinsurance carrier stock buybacks can be expected this year, according to an investment bank analysis released today.

Bank of America Securities property-casualty analyst Kevin O'Donoghue said that Bermuda insurers have a strong record of buying back shares when the market is not favorable for writing new business.

“This gives us increased confidence that we will see more share repurchases in 2007 and 2008 if there are no large losses this year that reduce industry capital and create opportunities for writing new business next year,” Mr. O'Donoghue wrote.

The bank said it expects most Bermuda insurers to generate excess capital in 2007 and anticipates premium growth of about 2.5 percent.

“Since high-return opportunities to write new business are diminishing, we expect a good portion of this excess capital to be returned to shareholders in the form of share repurchases,” the report noted.

Mr. O'Donoghue wrote that reinsurers will not necessarily wait until after the 2007 hurricane season to begin repurchasing shares. “Their capital bases are now higher than they were going into the 2006 season, and exposure may decline as more players seek to enter the catastrophe insurance business,” he wrote.

The 1996-2000 period represented a classic soft market in which market premium rates were below what insurers needed to earn their targeted returns. “As such, many companies in the business during those years repurchased shares rather than wrote business,” Mr. O'Donoghue wrote.

In a similar vein, during the 2003-2005 period, premium rates began to decline from their peaks–first in aviation and property lines, and then in casualty lines. “Eventually management teams reported they were disappointed with market conditions in some lines, and in some cases they were forced to lower growth forecasts,” he added.