(Re)insurer's CEO predicts tough 2011

Bermuda-based (re)insurance group Alterra Capital Holdings expects to make a profit of between $290m and $310m for the full 2010 year, chief executive Marty Becker has revealed in a letter to shareholders and clients. This would imply a return on shareholders' equity of between 11.8% and 12.5%.

Gross written premium for 2010 will total $1.4bn, including revenues from reinsurer Harbor Point, which merged with Max Capital in May 2010 to form Alterra.

The company will release its full-year 2010 results on 8 February.

For 2011, Alterra expects to produce a return on equity of between 8% and 9% from gross written premiums of $1.7bn, subject to frequency and severity of losses and changes to economic conditions.

The company has also revised its internal return on equity (ROE) targets. It previously targeted a 15% ROE across the underwriting cycle, but now believes a better measure is 10% above the risk-free return. Becker said that in historical investment terms the new target approximated the old 15% number, but "allows adjustment for today's new reality of unusually low 'risk free' returns," Becker wrote.

Becker predicted a tough 2011, characterised by continuing soft pricing, strong competition and depressed investment returns, despite some talk of rising interest rates. "We do anticipate some improvement in economic conditions for our clients that will enhance their sales and payrolls numbers, to which a good portion of our premiums are directly correlated, but this will likely benefit 2012 premiums more than 2011 premiums," he wrote.