A number of Bermuda insurers reported significant drops in net income in the third quarter of 2010–many within the 20-50 percent range, with declines primarily related to the New Zealand earthquake and other smaller catastrophes.
RenaissanceRe Holdings said it recorded $73.6 million of net negative impact in the third quarter from the quake. Validus Holdings expects about $28.7 million in losses, and Argo Group International said its exposure to the quake resulted in $11.3 million in losses.
Yet not all companies that reported large losses from the New Zealand quake experienced drops in net income. AXIS Capital Holdings, for example, said it took on $85 million in net losses from the quake but made $248.1 million in net income for the third quarter compared to a loss of $86.7 million last year during the same time.
During a conference call to discuss the third-quarter results, John Charman, chief executive officer of AXIS, said the New Zealand loss needs to be put into perspective as part of the company's overall global exposure. While a large loss, the company's total exposure to 2010 catastrophe losses–about $315 million–is about a 1.25 percent market share, he said.
For the group of 16 companies routinely tracked by NU, net income fell just over 9 percent, with the reversal for AXIS and a major earnings jump for XL Group lowering the overall magnitude of decline for the group. (See accompanying chart.) Excluding the changes for those two companies, the overall income drop is 24 percent for the remaining 14 companies, with Allied World showing the only remaining increase.
(Editor's Note: ACE Limited is no longer included in the Bermuda report at the request of the company. Results of several other companies with Bermuda operations that have redomesticated their holding companies, including XL, Allied World and Flagstone, are still included in NU's Bermuda reports.)
For the first nine months of 2010–despite an active yet uneventful hurricane season in terms of U.S. landfall–only Alterra and Arch Capital joined AXIS, XL and Allied World to form the handful of companies improving year-to-date net income compared to results as of Sept. 30 last year. Only Alterra improved its combined ratio over this nine-month span to 86.1 from 90.5 in 2009.
Year-to-date results have been impacted by catastrophes like the Chilean earthquake, storms in Australia, windstorm Xynthia in Europe and winter storms in the United States, in addition to the BP Deepwater Horizon disaster.
Everest Re, in recording nearly a 50 percent drop in income for the first nine months, said it had $514 million in catastrophe losses during that time. Deepwater Horizon added 10 points to the company's nine-month combined ratio of 104.2. Losses from the New Zealand earthquake were $75 million, pre-tax.
Whereas Lancashire said it has little exposure to New Zealand, it was affected by the Chilean earthquake and Deepwater Horizon. Following that disaster, pricing has improved in the energy sector. Energy gross premiums written increased 15.5 percent for the third quarter compared to the same period in 2009 and increased nearly 31 percent in the first nine months of 2010. This was driven by increased demand, including customers seeking increased limits and layers, Lancashire said.
As reinsurers prepare for renewals, Jamie Veghte, chief executive of reinsurance operations for XL, said "there is clearly an expectation that competitive trading conditions will continue for some time in most sectors of the market. We believe this is an underwriters' market and we will continue to exert discipline in our activities as we prepare for year-end renewals."
Richard Brindle, CEO of Lancashire, said, "It's times like this that cycle management and the ability to say no are critical." He said Lancashire continues to reduce levels of risk, substantially in the case of catastrophe business, and "all responsible companies should do the same."
Endurance's James D'Onofrio, executive vice president and head of reinsurance, said premiums for most companies are down because exposures are down. The company is trying to expand horizontally with the clients it has because "new business is challenging."
He noted, "We try to find companies that outperform the market in selected areas. We're only as good as our clients."
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