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By CYRIL TUOHY, managing editor of Risk & Insurance®

A slew of Bermuda reinsurers, buoyed by higher property-catastrophe insurance prices in the wake of an expensive 2008 hurricane season, a rising stock market and the absence of a market-jarring event in 2009, found themselves awash in a sea of black ink in the third quarter, according to earnings statements.

"The expectation is that generally the market turns on an event--a liability event or a hurricane," said Dean Evans, a reinsurance industry analyst with Keefe, Bruyette & Woods Inc. in New York. "We haven't seen that. With that in mind, these guys have been running along with pretty strong returns on equity."

Scoring big in this latest reporting period were Endurance Specialty Holdings Ltd., the global specialty provider of property/casualty insurance and reinsurance. The company posted net income of $153.8 million in the third quarter, up from a net loss of $99.4 million in the year-ago quarter.

It was a lucrative quarter for Partner Re Ltd. as well, which reported net income of $566.7 million in the third quarter, up from a net loss of $151.7 million in the year-ago quarter, according to earnings reports.

Without a "precipitating event," a hurricane or other expensive natural disaster that will force reinsurers to raise rates, said Patrick Thiele, CEO of Partner Re, prices will likely continue to deteriorate for the remainder of 2009 and into next year.

Everest Re Group reported third-quarter net income of $228.61 million, up from a loss of $233.12 million in the year-ago period; and Max Capital Group Ltd. reported third-quarter net income of $95.3 million, up from a net loss of $163.2 million in the year-ago period.

"An improvement in the investment market has lifted the fair value of our investment portfolio, contributing to the substantial book value increase for the quarter," said Max Capital Group Ltd. Chairman and CEO W. Marston Becker.

UNDERWRITING PRESSURE

While company executives were touting the improvements in investment income due to gains in the stock market, Evans noted that the companies' investment portfolios had not performed quite as well as expected. That is going to put more pressure on underwriting, he said.

Outside of property-catastrophe rates, the subprime liability crisis and Chinese drywall claims could make for some price hardening, said Evans. But even so, new capacity has entered the market, said James Eck, vice president and senior analyst in charge of Bermuda companies and U.S.-based reinsurers for Moody's.

"With the Chinese drywall, it's unclear still as to what extent insurers and reinsurers are on the hook," said Eck.

We are now seeing smaller rate declines, pockets of stability and some increases in some markets and for some coverages," reported Dominic J. Addesso, executive vice president and chief financial officer of Everest Re Group Ltd.'s, in government filings.

ADD MORE WINNERS TO THE LIST

For the moment, though, Bermuda companies are enjoying a healthy journey through third-quarter earnings season.

Flagstone Reinsurance Holdings Ltd., which insures and reinsures property-catastrophe and specialty risks, reported third-quarter net income of $67.1 million, compared with a net loss of $186.5 million in the year-ago period.

Flagstone Chairman Mark Byrne noted that cedants were diversifying their habits away from buying large blocks of reinsurance with the largest reinsurance carriers, a trend which is benefiting companies like Flagstone.

"Obviously, this kind of change benefits the high-quality, younger companies, and in 2009 we have gained new business from some of the industry's most demanding cedants," said Byrne.

Greenlight Capital Re Ltd., the Cayman Islands-based property/casualty reinsurer, also reported smooth sailing. The company reported net income of $32.3 million in the quarter ended Sept. 30, up from a net loss of $118.4 million in the year-ago period.

The news was equally upbeat at Bermuda-based Renaissance Re Holdings Ltd., a provider of catastrophe and specialty reinsurance, as well as primary insurance and quota share reinsurance.

Operating income at Renaissance Re Holdings shot up to $242.2 million for the third quarter, up from an operating loss of $143.4 million in the year-ago period, the company said. Renaissance Re CEO Neill A. Currie cited solid underwriting, strong investment returns and the lack of natural catastrophes as a reason for the turnaround.

Not all companies were in the black in the third quarter, of course. Even those in the red, however, reported less red ink in the third quarter compared with the year-ago period.

Bermuda-based Axis Capital Holdings Ltd., the provider of specialty lines insurance and treaty reinsurance, reported a loss of $95.8 million in the third quarter, compared with a loss of $249.3 million in the year-ago period.

Earnings were hurt by the increase in the liability of an insurance derivative contract, but otherwise benefited from strong underwriting results and the recovery of the company's investment portfolio, according to John Charman, president and CEO of Axis Capital.

November 13, 2009

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