There has been too much corporate activity in Bermuda to make an overall assessment of the business trends, comments Lee Coppack.
Anomalies abound. Comparisons are almost impossible. The one thing it is safe to say is that corporate activity - mergers and acquisitions, new ventures, new offices and variations on those themes - shows no signs of stopping among Bermuda's largest companies. With a few exceptions these are companies which are registered as class 4 companies, large commercial (re)insurers with at least $100 million in capital. Most have much more.
For example, ACE Ltd, added premiums from CAT, acquired earlier this year, to those of its existing property-catastrophe reinsurance subsidiary, Tempest Re, which resulted in a jump in net written premiums from $16 million to $38.9 million for the third quarter of the financial year to 30 June.
By contrast, the independent property-catastrophe reinsurer IPCRe, however, saw written premiums rise only very slightly in the first half of the 1998 year to 30 June. Losses, though, have increased nearly three fold. Says president and ceo John Dowling: "As we had noted several times during last year, it was unlikely that the low incidence of catastrophic activity seen during a benign 1997 would continue, and the first six months of 1998 have seen a return to a more typical level of claims. The second quarter of 1998 saw more catastrophic activity in the US than all other second quarters since such records have been kept."
Still independent but no longer a pure property-catastrophe reinsurer, PartnerRe's results include its French acquisition, SAFR, from the start of the year for the first time, resulting in huge hikes in all its revenue and expenditure figures. Net income was up 22% for the first half of the year to 30 June. PartnerRe is increasing its penetration of the US market through SAFR, which was already established there, and has just announced the opening of a Tokyo office.
Excess liability business, the original line for both ACE and EXEL, showed a steep fall in gross written premiums at ACE for the nine month period, from $116.9 in 1997 to $78.9 million this year. Directors' and officers' premiums were down from $68.7 million to $58.0 million over the same period. EXEL, which is now incorporating its 1997 acquisition Global Capital Re (GCR) revealed wide swings in premium development for different classes of business for the second quarter and half year to 31 May. General liability business was down in the first quarter of the but up sharply in the second quarter. EXEL's gross D&O premiums were up by 23% over the six month period, but professional liability business was less than half the comparable period of 1997.
EXEL's results will look fundamentally different again with the inclusion of Mid Ocean, the purchase of whose outstanding shares was approved by the shareholders of both companies on 3 August. As a result of the Mid Ocean deal, Lloyd's will feature as an important source of business for EXEL as it does currently for ACE and Terra Nova.
For ACE, gross premiums from its Lloyd's syndicates have increased from $44.4 million to $156.7 million in the nine months to June 30. For increased participation in the Nova's Octavian syndicates and premiums for reinsurance to close Lloyd's syndicates contributed largely to the rise of 41.0% in Terra Nova's gross written premiums in the first six months of 1998.
On the services side, Mutual Risk Management (MRM) announced record results for the first six months of 1998 with a 73% rise in income from what it calls programme business, linking producers of speciality books of business directly with reinsurers. A subsidiary of MRM, whose results the stock market clearly likes (see table), is to manage a new Bermuda company set up by Travelers. Travelers (Bermuda) plans to offer specialised covers such as punitive damages, loss portfolio transfers, and contractual liability coverage, as well as excess and professional liability to its multi-national clients.
In another of the many new ventures, Chubb Atlantic Indemnity, the Bermuda subsidiary of The Chubb Corporation, has set up a new reinsurance unit to provide Bermuda market captives with excess of loss, quota share, aggregate stop loss and reinsurance fronting carriers. Company president Chris Longo says that the operation, which must get its business through Bermuda brokers, is a dedicated facility which fills a gap in the worldwide reinsurance market.
1997 global results
The global trend among Bermuda's class 4 companies in 1997 was of increasing assets and slightly decreasing premiums, according to official statistics published by the registrar of companies, Kymn Astwood.
At the end of 1997, there were 16 class 4 companies, and thanks to what Mr Astwood describes as "prudent investment techniques", they were able to report a combined 6% increase in capital and surplus to $9.4 billion despite a 3% drop in gross premiums to $3.3 billion. Even so, it was slower growth than the comparison between 1995 and 1996, when capital and surplus rose 13%.
Says Mr Astwood: "The leaders of the market have utilised this time of slow premium growth to consolidate and direct their investment strategies to maximise profits and sustain their companies when some thought that the market would see massive declines and there would be a mass exodus of class 4 insurers."
As if to provide support for Mr Astwood's comments, one completely new class 4 company has been approved already this year and AIG, the new parent company of Starr Excess, has demonstrated its commitment to the island by incorporating Starr Excess Liability Insurance International as a class 4 company, while proceeding with plans to move the corporate headquarters to the United States.
The completely new class 4 company is Lehman Re Ltd, set up by Lehman Brothers Holdings with an initial $500 million in capital to underwrite as well as securitise insurance and reinsurance risks. It intends to offer customised products in four areas: finite and structured financial solutions, property-catastrophe reinsurance, political risk and trade credit insurance; and life/annuity reinsurance.
Goldman Sachs has also set up a Bermuda reinsurer, Arrow Re, for a similar purpose.
Bermuda and the US
Bermuda companies have consolidated their position as the most important overseas reinsurance market for US ceding companies. Figures from the Reinsurance Association of America (RAA) show that premiums ceded to reinsurers in Bermuda have grown steadily from 1993 to 1996, the last year for which consolidated figures are available.
In 1996, US companies ceded $15.8 billion to what are called alien reinsurers, including companies with which the cedant is affiliated. Bermuda companies wrote $6.8 billion of that premium for a market share of 43%, up from 41% in 1995. Its gains were at the expense of the London market, Japan and France, which all showed lower premiums from the US in 1996.
Lee Coppack is co-editor of Global Reinsurance and editor of the annual Bermuda edition of Global Reinsurance. E-mail: email@example.com