Benfield report shows balance sheets were fortified for potential losses.

An abundance of capacity, manageable catastrophe losses, and higher primary retentions set the scene for a weak pricing environment in the Bermuda market during the first half of 2008, according to the latest Benfield Bermuda Quarterly.

The 1H 2008 report, encompassing 18 of Bermuda’s premier reinsurance companies, takes a closer look at gross premiums written. Growth by acquisition flattered the total which at $33.5bn was unchanged on the comparative period. Indeed total GPW fell 7% excluding those reporting incremental income through acquisition.

The analysis highlights a significant fall in investment income of around 7% in the first half of 2008 to $4.1bn, driven by cuts in US interest rates. In addition a 1H 2007 $0.4bn realised investment gain swung into a $1.3bn loss. Total net income for the group fell 32% to $4.3bn, with only four companies enjoying a rise in net income.

Angela Coad, a member of Benfield Research said: “Competitive pricing and lower investment returns have put pressure on earnings, and with balance sheets fortified for potential losses, a fall in return on equity was inevitable.

“Average return on equity for the Bermuda Quarterly group, at 11.9%, was well below the 19.4% of the comparative period, and the 16.1% recorded at year end.”

In terms of underwriting performance, aggregate releases totalling $1.5bn helped boost the average combined ratio for the group by almost 8 percentage points to 87%. IPC Holdings reported the lowest combined ratio at 17% and all but one were below 100%.

Property Claims Services (PCS) has estimated second quarter losses at slightly over $6bn, making it the largest loss-making quarter in the past 20 years. However, a dearth of major catastrophe losses coupled with a high level of primary retentions limited the impact on the Bermudian reinsurers.