A.M. Best, a rating agency has issued a report which states that fourteen of the world's 35 largest reinsurance companies in 2005 - two in five, or 40 percent - are Bermuda companies. Several more of the top companies had Bermuda operations, but are not headquartered on the Island.
The report, which provides an overview of the 2005 financial year and a preview of 2006, points to the growth in securitisations and cat bonds, the formation of sidecars (more than two-thirds of which are Bermudian-owned), and changes in methodology as the key developments in the market in 2005, along with the change of direction of the European market to a broader base.
The criterion for inclusion on the list was gross premiums written in 2005, which ruled out all of the "Class of 2005" start-up companies formed in Bermuda in the wake of Hurricanes Katrina, Rita and Wilma. Bermuda's representation in the 2006 list will, therefore, almost certainly be even more significant.
In its "2006 Annual Global Reinsurance Study", sub-titled "Reinsurers Humbled, But Most Not Broken, by Hurricane Losses", Best also reported that Bermuda carried a greater share of cost of 2005's insured losses than did the US or European markets. "The adverse effects of the 2005 hurricanes were distributed unevenly across the globe, with US and Bermudian property reinsurers carrying more of the losses than their more diversified European counterparts," Best said. "Bermudian companies shouldered approximately $11 billion of the insured property losses, while US reinsurers' losses came in at an estimated $7.1 billion."
Best confirmed that the Bermuda market more than replenished its losses from last year's storms: "In response to the lost capital and the expectation of high returns from a hardening market, approximately $18 billion in new capital flowed into the Bermuda market, mostly in common and preferred equity," the report said. "Approximately $8 billion was invested in nine start-up companies and sidecars to form the "class of 2005". The rest went into existing reinsurers."
The report also contained a warning: "The market remains susceptible to competition as investor expectations run high," Best said. "Should the currently perceived market opportunity not hold for property catastrophe reinsurance, the new capital that flowed into the market may seek alternative investment strategies."
Commenting on Bermuda's strong showing in the list of the top 35 global reinsurers, Best said that changes should be expected in 2006. AXA Re is to transfer its book of business to Paris Re, a Bermuda company, further strengthening the Island's power in next year's Top 35, as well as the 2005 start-ups coming on line this year, several of whom should make a showing in next year's rankings.
The drop in aggregate gross premium for the 35 companies to $158 billion in the 2006 ranking, from $172 billion in the 2005 ranking, was primarily a currency translation issue, Best said, following changes in the power of the US dollar. Net of last year's dollar gains, the previous ranking's aggregate gross premiums would have been $160 billion on a comparable basis.