Start-ups focus on future prospects

Bermuda's newest reinsurers said price increases seen at 1 January - strong in the US, and weaker in Europe - were just the beginning of the rate hikes expected this year. "The so-called renewal season may not have been the whole story," said Donald Kramer, chair and CEO of new Bermudan reinsurer Ariel Re. "To say the market hardened overall is just not the case. But rates are starting to harden more; we expect significant increases in April and May."

"We expect 1 January 2007 to be stronger," said John Andrews, chief underwriting officer of Amlin Bermuda. "Non-North American rates were up at 01/01 very little. We believe these rates will go up significantly through the year.

Not only is it a matter of Gulf coast policy renewals but reinsurers' reinsurance has increased," he added, indicating rate increases will be felt beyond hurricane-prone areas. Andrews added that Amlin Bermuda had written more than $60m in policies, net of brokerage and excluding intra-group business, since officially opening for business on 1 December.

Rates at the renewals were, on average, 10% to 15% higher in the US.

And policies for US coastal areas were up as much as 50%. In contrast, European policy increases were disappointingly muted, some said. "We declined 75% of the business we saw from Europe," said Kramer. "Swiss Re and Munich Re were very aggressive in going after business. We walked away when prices were too low."

John Berger, chief executive of Harbor Point Re, a new company spun off as part of Chubb Corp's exit from the reinsurance business, said the market had not yet priced in the "full impact" of rating agencies' increased capital requirements, nor had it accounted for the revamp of catastrophe models. "We could see some tightening," he predicted.

As with European rates, Bermuda's newest reinsurers are also concerned that Japanese market rates are too low. Berger wasn't optimistic that rates would rise as much as necessary by the time that nation's insurers renew reinsurance coverage in April.

John Andrews said Amlin's view was that the Japanese market pricing was still too low after a run of typhoon losses in 2004, and large fire losses.

"Fundamentally there is a perception that rates may need to go higher," said Andrews, adding that wind excess of loss policies, an area where Amlin is active in Japan, need to be priced 20% to 25% higher.