The Bermuda insurance market reported an improved 2006 combined ratio of 83.7, compared with 119.4 for catastrophe-scarred 2005, according to a new special report from A.M Best Co.
Underpinning the dramatic improvement in that profitability measure was the robust level of pricing attained in 2006 relative to U.S. catastrophe-exposed business.
The absence of major catastrophe losses and favorable loss-reserve development emerging from the 2003 and 2004 underwriting years set the stage for one of the most favorable earnings years on record, the Oldwick, N.J.-based insurance rating agency said.
Underwriting activities alone generated $6.9 billion of earnings. “Combine that with net investment income of $7.0 billion, and the sector produced a composite return on equity of 19.3 percent,” the report noted.
After taxes and other miscellaneous expenses, the report said, net income totaled $11.6 billion, which net of $1.4 billion in shareholders dividends was added to the coffers of Bermuda's leading reinsurance and insurance organizations.
Leading the Bermuda pack for 2006 in terms of net premium volume was ACE, followed by XL Capital, Everest Re and Partner Re, according to the report.
In terms of combined ratio, the property-catastrophe-oriented companies posted the lowest combined ratios in the sector, indicating higher underwriting margins for the year, Best said.
However, for property-oriented companies, one year's underwriting gain can be a shortsighted view of success, as gains can be wiped out overnight, the report warned.
“While the market has for the most part remained rational, the current overall consensus is that the peak of the cycle, if only temporarily sustained by the events of 2005, is now clearly in the rearview mirror,” the report said.
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