Bermuda Market Seen Challenged, But Well Positioned For '09

NU Online News Service, July 2, 9:50 a.m. EDT

Bermuda insurance and reinsurance markets face challenges this year after a difficult 2008, but high-quality investment portfolios and strong enterprise risk management capabilities should help soften the blow, a new study said.

The findings were contained in the Deloitte report, "Bermuda Insurance Market 2008: Navigating Through the Storm," put together with analysis by Standard & Poor's.

Deloitte said that world economies are expected to struggle in 2009 after the challenge of 2008. While 2008 was a bad catastrophe year, the crumbling of the investment markets took a bigger toll on insurance companies, and the report found that Bermuda was not immune to the problems.

According to the analysis, 14 out of the 17 publicly traded Bermuda insurers and reinsurers that were part of the study traded at less than book value as of Feb. 2009.

However, even with the increased risks of natural and man-made catastrophes, and the ongoing economic turmoil, the report said the Bermuda companies "remain resilient and benefit from a number of attributes that should help them navigate through the storm."

For one, the report found that Bermuda insurers and reinsurers benefited from substantial levels of excess capital built in 2006 and 2007. Most companies enjoy strong levels of capital adequacy, strong operating cash flows, little debt coming due over the next two to three years, and large credit facilities that do not expire for another one to three years.

Regarding investments, the report said the Bermuda companies "hold very high quality investment portfolios, with limited exposure to equities, hedge funds, or sub-prime." This has helped protect them from some of the troubles in 2008 and into 2009, the report noted.

Many Bermuda companies rated by Standard & Poor's are also considered as having "strong or excellent ERM capabilities," and others that are rated as "adequate" are making improvements in this area that should lead them to "strong" scores, according to the report.

Concerning individual companies, the report ranks ACE Limited as number one among the Bermuda companies with respect to total capital and surplus ($14 billion), and total assets ($72 billion).

XL Capital Ltd. ranked second with total capital and surplus of $6 billion and total assets of $45 billion.

AXIS and PartnerRe ranked third and fourth, with Arch Capital Group Ltd. ranking fifth - replacing last year's fifth ranked company, RenaissanceRe Holdings Ltd.