There is no doubt that the world's property/casualty (P/C) markets have been an increasingly tough place to do business over the last 12 to 18 months. Wafer thin or negative margins, a surplus of available capital, the sometimes frantic push for premium growth and the polarisation of the stock market performance of old economy and new economy companies have meant that P/C companies have struggled to maintain profits and provide realistic returns to shareholders.
Share prices for P/C companies have fallen significantly across the board. It is not unusual nowadays to find insurers' stocks trading at a significant discount to book value – possibly reflecting the market's scepticism as to whether the true costs of recent premium prices have still to make their impact in increased loss ratios for business already written.
Bermuda has not been immune to these developments. Indeed, for a market so inextricably linked through investment and competition with each of the other major markets, it would be surprising if Bermuda was not similarly affected.
This is perhaps the true, evolving story – not one of a fledgling market experiencing continuous unbridled growth and fairytale results, but of a key part of the global market which is specialist in its orientation and flexible in its consideration of new business opportunities.
To continue to trumpet solely Bermuda's growth would ignore its now acknowledged status as a bona fide market, and one which houses a number of very significant, global insurance companies. The competitive reach of these companies goes far beyond Bermuda's traditional boundaries. Increasingly, they stand ready to leverage the competitive advantages Bermuda offers in terms of facilitating new products and developments. There also appears to be a growing international recognition among non-Bermuda based insurers and reinsurers that using Bermuda to develop new business activities is quicker, easier and, in due course more effective. Not without reason is Bermuda marketed as the world's insurance laboratory.
The performance of Bermuda companies during 1999 has varied. The results of the larger and more diversified companies such as ACE, XL Capital and PartnerRe have reflected the global trends, despite their anticipated growth in activity level following various mergers and acquisitions. Other specialist markets/companies have performed well, perhaps reflecting their ability to eke out returns in a difficult market by adding value to customers' particular circumstances.
As the larger companies have grown and merged, their approach has changed. Inevitably, ACE, XL Capital and PartnerRe have developed much broader books of business following merger activities. A number of the next tier Bermuda companies, such as Overseas Partners (OPL) and Commercial Risk Partners, have also been diversifying their activities in an attempt to leverage their capital better and broaden their exposure base.
This change of business focus has made it increasingly difficult, therefore, to classify and compare the performance of Bermuda companies that previously wrote only a relatively small number of specialty lines.
Instead, we have elected to provide readers with an overview of events in the Bermuda market in 1999/2000 and an assessment of how those trends and forces have affected Bermuda's global players or, as we have referred to them, its “billion dollar writers”. For purposes of comparison, we have continued to provide a multi-year synopsis of performance for each of the companies that agreed to participate in this review and hope that this will provide a useful reference point.
In the following analysis, we look briefly at the impact of the second heaviest catastrophe loss year on record on Bermuda's p/c reinsurers and, following this, review the significant events which, in our view, have been affecting the market during 1999/2000.
In a year when the Reinsurance Association of America (RAA) reported a worsening aggregate combined ratio of 113.8% for a sample of the largest US reinsurers, compared with 104.4% for 1998, Bermuda, insurers and reinsurers, too, felt the impact with, in most cases, poorer financial results.
Those that did not experience such reductions were generally specialty companies that have managed to develop niche markets for their products and expertise.
The investment community's scepticism as to the value of insurance stocks in general has also affected Bermuda's publicly traded companies, although some have been hit harder than others. ACE's share price, for example, declined by approximately 50% over the 1999 calendar year and its price to book ratio fell by 57%. Others, such as XL Capital and PartnerRe, have not fared quite so badly.
Overall, the capitalisation of companies now classified as Bermuda market companies, has fallen by more than one-third from approximately $24.9 billion at 31 December 1998 to $16 billion at 31 December 1999.
Total gross premiums written for the companies surveyed rose 54% in 1999 to $13.2 billion compared with $8.6 billion in 1998, and total shareholders' equity grew 8% to $24.1 billion (1998 - $23.9 billion).