Any analysis of the Bermuda market must quickly focus on its three larger, international insurers: ACE; XL Capital, and PartnerRe. Their rapid growth over a relatively short period of years, often by means of acquisition, and their continued trend towards diversification, make them interesting points of reference and comparison. After all the recent activities, each inevitably has developed a distinct identity and strategy.

For the purpose of this analysis, we have compared 1999 reported data to amounts originally reported for the comparative periods to illustrate appropriately the impact of activity undertaken by these companies during 1999. Reference to 1998 data does not, therefore, reflect the restatement of prior period data following the pooling of interest accounting adopted by XL Capital in respect of its purchase of NAC Re, nor the change of year-ends from November and September to December for both XL Capital and ACE, respectively.

ACE clearly sets its sights on being a global insurance franchise but, at the same time, is moving rapidly in the development of what it sees as good strategic business opportunities, as demonstrated by the recent Capital Re acquisition. XL Capital, while having spread its area of geographic activity, appears to be focusing more on the financial/capital markets opportunities as a core business strategy. Through XL Mid Ocean and NAC Re, the group continues to have a significant reinsurance interest.

PartnerRe's change from a mono-line property catastrophe reinsurer to a broadly based P/C reinsurer was brought about by two significant acquisitions, the French company SAFR in 1997 and the reinsurance operations of Swiss company Winterthur including Winterthur Re in 1998. The recent sale of its North America life related business clearly demonstrates a strategy of focusing on its core P/C businesses.

Financial analysis

In the four year period from the end of 1996 to the end of 1999, the total assets of each company increased dramatically, primarily as a result of acquisitions: ACE from $4.6 billion to $30.1 billion (up 554%); XL Capital from $5.0 billion to $15.1 billion (up 202%) and PartnerRe from $1.5 billion to $7.6 billion (up 407%).


The continued diversification of activity is reflected in the 1999 results of operations. XL Capital, which in 1994 still derived over three-quarters of its premium income from excess liability risks, now has less than 10% from that source. XL Capital's business at Lloyd's increased by 363% in 1999 to $591 million. PartnerRe underwrote 100% property catastrophe risks until mid 1997. For 1999, no single business line accounted for more than 21% of its total gross written premium. While property catastrophe continues to be PartnerRe's largest line of business, other classes include casualty, credit & surety, agriculture, marine, aviation and space. ACE no longer discloses its premiums by class of business, although it clearly has moved a long way from its roots as an excess liability and directors and officers' liability carrier.

Gross premiums written

All three companies show increases in gross premiums written, as illustrated. Much of this increase is attributable to recent acquisitions.

ACE wrote gross premiums of $3.87 billion for the year ended 31 December 1999, compared to $1.24 billion for the year ended 30 September 1998. This 212% increase is mainly due to the inclusion of ACE INA since 2 July 1999. All segments, however, reported increases in gross premiums written over the prior year. ACE Global Markets increased 45% in 1999 due to increased participation at Lloyd's. Gross premiums written by Tempest increased 52% to $199 million in 1999. Tempest acquired property catastrophe reinsurer CAT on 1 April 1998 and, therefore, 1999 includes a full year of CAT results, whereas 1998 only includes six months. ACE USA and ACE International contributed nearly two-thirds of total gross premium written for 1999 compared with only 13% for the year ended 30 September 1998.

In the 1999 fiscal year, XL Capital wrote gross premiums of $2.44 billion, up from $807 million reported in 1998. Increases are attributable to:

  • Additional business written through NAC Re;

  • The acquisition of Mid Ocean in August 1998 (including the Brockbank group at Lloyd's) which results in only five months of gross premiums written by these operations included in 1998 compared to 12 months in 1999;

  • Increases in casualty business resulting primarily from a relatively small number of large reinsurance transactions.

    Reductions resulting from business not renewed by XL Capital because of unacceptable pricing and decreases in general liability rates offset the above increases to some extent.

    PartnerRe wrote gross premiums of $1.43 billion in 1999 compared to $736 million in 1998 and $473 million in 1997. The 95% increase in 1999 reflects the inclusion of the results of the Winterthur reinsurance acquired on 23 December 1998. The 56% increase in 1998 was primarily due to the inclusion in 1998 of a full year of SAFR's global, multi-line reinsurance premiums written, compared to only half a year of premiums written included in 1997.

    Net premiums earned

    The increases in net premiums earned for ACE, XL Capital and PartnerRe are primarily attributable to the acquisitions and new business initiatives, as discussed above.

    The proportion of net premiums written to gross premiums written remained relatively constant for XL Capital and PartnerRe over the past three years. The same ratio for ACE has declined from 82.4% in 1997 to 64.4% in 1999. This is the result of an increase in the use of reinsurance, beginning in 1998, predominantly in ACE Bermuda which purchased an excess liability quota share treaty. Also, an excess of loss treaty was put in place that limits the retained risk on a single occurrence to $100 million. Moreover, the satellite division of ACE Bermuda bought additional reinsurance.

    Premiums written to shareholders' funds

    The ratio of net premiums written to shareholders' equity, which provides an indication of the exposure of the companies' surplus to underwriting risk, increased for all three companies in 1999, as one would expect with an increasingly varied book of business.

    As all three companies have continued to diversify, their expense ratios have increased. Lloyd's business, in which XL Capital and ACE both have significant shares, tends to have higher brokerage costs. PartnerRe's expense ratio increased over the last two years as the full impact of the inclusion of the Winterthur and SAFR's global multi-line businesses acquired in 1998 and 1997 was felt. This business has a higher proportion of proportional treaties, and they carry a higher average commission rate than non-proportional treaties.


    Combined ratios remained under 100% for much of the history of all three companies until 1999, when XL Capital's reached 109% and PartnerRe's reached 115%.

    ACE's loss and loss expense ratio increased from 57.8% in 1998 to 66.0% in 1999, primarily due to the inclusion of the domestic business of ACE INA, as well as the increase in insured catastrophes during the year.

    XL Capital's loss and loss expense ratio increased from 57.0% in 1998 to 74.5% in 1999 due to losses incurred on the two major European windstorms in December 1999, other insured catastrophes in Sydney and Oklahoma, and satellite losses earlier in the year.

    PartnerRe's loss and loss expense ratio has increased from 43.5% in 1997 to 57.9% in 1998 due to the acquisition of SAFR and the Winterthur reinsurance operations. In 1999, the loss ratio increased to 84.5% as a result of incurred losses related to large catastrophic events in the year of $164 million net of tax, versus $43 million net of tax in 1998.

    Net income

    ACE reported net income of $365 million for the year ended 31 December 1999 compared to net income of $560 million for the year ended 30 September 1998. Realised gains were only $37.9 million in fiscal 1999 compared with $188.3 million in fiscal 1998. ACE incurred non-recurring charges of $7 million net of taxes in 1999 in respect of the ACE INA acquisition, compared with $46 million in 1998 with respect to the acquisition of Tarquin at Lloyd's.

    Net income, excluding net realised gains and non-recurring expenses, declined $88 million primarily due to the impact of property catastrophe losses.

    Offsetting these factors was an increase in investment income of $169 million in 1999, primarily from the increase in investment assets resulting from the ACE INA acquisition on 2 July 1999.

    For 1999, XL Capital announced net income of $470.5 million, which was 20% lower than the 1998 net income of $587.7 million. XL Capital's results for 1999 included those of NAC Re and those of Mid Ocean from 7 August 1998, the date of acquisition.

    Realised gains were $94.4 million in 1999 compared with $191.8 million in 1998. Losses incurred by XL Capital of $125 million relating to two European windstorms in December are the primary reason for the balance of the fall in net income in 1999.

    PartnerRe's net income for fiscal 1999 declined 64% to $94.8 million from $266.3 million in 1998. This decrease was largely attributable to major catastrophic losses in 1999, as described previously, mitigated by higher investment income resulting from the acquisition of Winterthur on 23 December 1998.

    Shareholders' equity

    Total shareholders' equity of ACE increased from $3.91 billion at 31 December 1998 to $4.45 billion at 31 December 1999. Increases in shareholders' equity resulted from the shares issued in connection with the acquisition of Capital Re, valued at $366.9 million, and net income for the year ended 31 December 1999 of $365.0 million. Other net changes resulted in an increase of $77.8 million. Offsetting these increases in 1999 were declared dividends of $84.1 million and net unrealised depreciation on investments, net of tax, of $185.6 million.

    Shareholders' equity of XL Capital increased from $4.82 billion to $5.58 billion. The increase largely reflects the effects of the merger with NAC Re.

    PartnerRe's shareholders' equity decreased by $273 million to $1.84 billion largely as a result of a repurchase of close to 10% of its outstanding common shares. Also, the change in unrealised gains/losses on investments during 1999 resulted in a decrease in total shareholders' equity of $83.8 million.

    Return on equity (RoE)

    Given the difficult operating conditions in 1999, it might have been anticipated that all three companies would experience falls in RoE, and this has been borne out. PartnerRe recorded an RoE of only 4.8%, but still has an RoE of approximately 14% since inception. ACE's RoE declined from 17.7% in 1998 to 8.9% in 1999. XL Capital fell from 14.9% (on a restated basis for NAC Re) in 1998 to 8.4% in 1999.