Roger Crombie

The Ancients believed that when planets aligned, magic ensued. The alignment of the planets has little influence in an industry driven by computer models, but what happened to insurance companies in Bermuda in the first half of 2003 was magic. Just about all the most desirable business conditions were in place in Bermuda from January to June. The hard market across most lines of business continued, stock markets edged up, a cluster of companies with significant capacity remained to meet new demand, companies stayed focused on underwriting, there were relatively few claims, there were no new accounting rules to cloud financial results and European competition was nowhere to be seen. Even Lloyd's got it right, by returning to form and providing at least some competition to keep all the Bermuda insurance players on their toes.

As a result, Bermuda companies in the first half of 2003 went gangbusters.

To prove it, Risk & Insurance selected a dozen companies to represent the various tranches of capital now resident in Bermuda.

ACE and XL, the mid-1980s start-ups that have gone on to become global giants, represent the second wave of capital to hit Bermuda, after the captive industry took hold in the 1960s.

IPC Holdings, Partner Re and Renaissance Re are the three surviving independents from the Class of '93, the group of companies that invested $8 billion in property and catastrophe reinsurance that year and revived the market, boosting capacity by 50 percent.

Everest Re Group, Max Re and PXRE Group represent the companies that arrived in or migrated to Bermuda individually, without being identified as a group. Their arrival into Bermuda broadened a market that had coalesced around property and casualty reinsurance.

Allied World Assurance Holdings, AXIS Capital Group, Endurance Specialty Insurance and Montpelier Re Holdings are companies that arrived after Sept. 11th, 2001. Each staked out a piece of turf, trading in both insurance and reinsurance, an idea pioneered in Bermuda by ACE and XL. Unable to use more than about half their capital last year, they were armed for the bear market when the 2003 renewal season swept in.

Bermuda's net capacity is now more than $50 billion. The 13 companies selected probably represent two-thirds of that figure. Net premiums for these firms rose by 75 percent, year-on-year. Some of that is explained by the post-Sept. 11th 2001, start-ups using a greater percentage of their capital.

Total net income for the 13 companies was $2.8 billion for the first six months of the year. That means that they could have met an additional loss that size out of earnings, before their capital and surplus was even employed. Bermuda's share of the World Trade Center loss has been estimated at about $6 billion. The combined ratio of the selected companies for the first half of 2003, on a weighted basis, was 86.8 percent.

Generally, the selected companies retained a greater share of the risks they wrote in the first half of 2003. They kept 49 percent of the gross premiums they wrote, up from 42 percent a year earlier.

Here is a roundup of how each company performed in the first the six months ended June 30.

ACE earned net premiums of $4.4 billion in the first six months, and the company returned net income of $618 million. Reinsurance is now the junior partner.

Brian Duperreault, chairman and CEO, said: "If I had to single out a defining characteristic of the second quarter, I would point to the significant increase in our capital strength. Everything that happened this quarter contributed to our capital resources. We posted record income (and) generated positive gains in both our fixed income and equity portfolios. The result (of these and certain financing actions) was a 22 percent increase in shareholders' equity for the quarter, from $6.7 billion to $8.2 billion."

Allied World Assurance Holdings, an AIG affiliate, reported net income of $129.6 million, compared with $44.0 million for the first half of 2002. Better use of capital is the main reason. On June 30, 2003, shareholders' equity was $1.85 billion, an increase of 19 percent over the $1.55 billion reported a year earlier.

President and CEO Michael I. D. Morrison, said in a statement that the company was able to deliver its results because "by applying our available capacity in all areas in which we specialize, where the need for quality coverage continues unabated."

AXIS Capital Holdings spent a good chunk of its first two years building an international infrastructure, which did not stop it from writing gross premiums which amounted to $1.2 billion in the first half of 2003. Of that, 39 percent was derived from global insurance, 28 percent from global reinsurance, 23 percent from U.S. insurance, and 10 percent from U.S. reinsurance.

John Charman, president and CEO, said: "These results clearly demonstrate the differentiating AXIS franchise that has been built over the last 18 months. All four of our underwriting segments are now fully operational."

Endurance Specialty Holdings' stellar first half performance reflected an increasing mix of casualty insurance, casualty treaty reinsurance, and working layer property reinsurance business. Total gross premiums in the first half included $396 million in gross premiums acquired as part of the company's acquisition of the majority of the in-force assumed reinsurance business underwritten by HartRe.

"We created Endurance to consistently deliver profitable growth for our shareholders," said Kenneth J. LeStrange, chairman and CEO. "The strong results for the quarter provide further evidence of the success of our strategy of writing both casualty and property businesses, maintaining a conservative balance sheet, and identifying and delivering value-enhancing acquisitions."

At Everest Re Group, total revenues for the first half of 2003 jumped to $1.8 billion from $1.1 billion a year earlier. Net cash flow generated in the first half of 2003 was $680.9 million, up from $275.1 million a year earlier.

Chairman and CEO Joseph V. Taranto said: "Solid execution in firming markets contributed to the company's robust topline growth, excellent cash flow, continued improvement in underwriting margins, and strong earnings and book value growth."

IPC Holdings, the smallest of the remaining independents, is also the one that has remained the most highly focused on the property/catastrophe business it entered 10 years ago. At June 30, 2003, the company reported net income of $133.1 million, up from $922 million in the six month ended June 30, 2002.

President and CEO James P. Bryce commented: "We continue to operate and grow in a healthy and attractive environment. Despite an increase in catastrophic activity during the second quarter, our excellent results for the period are a continuation of what can be achieved through disciplined underwriting combined with a relatively low incidence of losses."

Max Re Capital has added traditional reinsurance to its mix. Property and casualty underwriting produced all the premiums in the second quarter of 2003, as it did a year earlier. Net premiums written in the first half was $525 million, up $100 million from $425 million for the six months ended June 30, 2002.

Robert J. Cooney, chairman, president and CEO, said: "Our alternative investment portfolio has achieved record results during the last six-month period and, coupled with increasing profits from property and casualty alternative risk and traditional reinsurance underwriting, has resulted in the company producing record net operating income for the first six months of 2003."

Montpelier Re Holdings was among the slower of the post-Sept. 11th start-ups, but began turning in bigger numbers in the first six months of this year. Net income for the six months ended June 30, was $112.5 million, up from $46.2 million for the six-month period ended June 30, 2002.

Anthony Taylor, president and CEO, said: "Montpelier has followed a strong first quarter in 2003 with an even stronger second quarter. Montpelier is starting to come into its stride. The first 18 months of operations have produced exceptional returns, but throughout that period, we have been continually refining our business model. We look ahead with a great deal of optimism."

PartnerRe is 10 years old this year. The company was started with $1 billion; today it manages assets worth in excess of $10 billion and, accommodating a generous dividend program, has shareholders' equity of $2.4 billion. According to company statements, PartnerRe delivered net income of $246.2 million in the six months ended June 30, 2003, up from $129.8 million for the six months ended June 30, 2002. "Growth in net written premium during the second quarter continued to be strong," PartnerRe president and CEO, Patrick Thiele, said. "Given our strong second-quarter growth on top of the 50 percent growth in the first three months of 2003, we now expect a higher level of growth for 2003, closer to 30 percent."

PXRE Group has been on a growth tear for the past year and a half. For the six months to June 30, 2003, catastrophe and risk excess provided 94 percent of continuing net premiums earned, with finite and other lines making up the balance. Shareholders' equity passed the $500 million mark for the first time at June 30, 2003. The company reported a profit of $45.1 million in the first half, up from $37.3 million for the year-earlier period.

Gerald L. Radke retired as chief executive officer on June 30, 2003, to become chairman. As he passed the reins to his son, CEO Jeff Radke, he said: "I am extremely pleased by the strong growth achieved by the company during my last quarter as CEO. I am confident that the company is well positioned to continue to build on the success we have experienced over the lest six quarters."

RenaissanceRe is another 10-year-old company with an impeccable record. Its secret has been to remain focused on underwriting and to build a unique series of arrangements with joint venture partners. The company reported net income of $331.4 million for the six months ending June 30, 2003, up from $174.3 million for the same period in 2002.

James N. Stanard, chairman and CEO, said: "Our second quarter came in ahead of expectations principally because of light catastrophe losses. We are especially pleased with the growth in our individual risk unit, which is now expected to deliver more than 40 percent growth in gross written premium for the year."

XL Capital is coming into its own this year. Its new London offices will open early in 2004, under a 25-year lease arrangement. The company reported net income of $607.8 million for the first six months of the year, up from a loss of $2.3 million last year.

Commenting on XL's second quarter, president and CEO Brian M. O'Hara said: "Cash flow from operations was a robust $952 million for the second quarter. The $669 million in XL Life and Annuity transactions this quarter increased cash flow to $1.6 billion. Net premiums earned from general operations increased by more than 40 percent compared to the second quarter a year ago." Pushing Premiums Bermuda Re/insurers deliver strong numbers in the first half of 2003 * Gross Premiums Written 2003 2002 Increase ACE 7,518 6,047 24% Allied World Assur. 839 405 107 Arch Capital Group 1,536 558 175 AXIS Specialty 1,160 526 121 Endurance Spec. Ins. 1,015 395 157 Everest Re Group 2,070 1,230 68 IPC Holdings 257 207 24 Max Re 596 465 28 Montpelier Re 561 340 65 Partner Re 2,099 1,415 48 PxRE Group 179 167 7 RenaissanceRe Hold. 898 731 23 XL Capital 5,184 4,397 18 Net Premiums Written 2003 2002 Increase ACE 5,336 3861 38% Allied World Assur. 765 398 92 Arch Capital Group 1,337 503 166 AXIS Specialty 990 495 100 Endurance Spec. Ins. 1,012 374 171 Everest Re Group 1,940 1170 66 IPC Holdings 242 202 20 Max Re 525 415 27 Montpelier Re 519 321 62 Partner Re 2,074 1388 49 PxRE Group 151 124 22 RenaissanceRe Hold. 751 578 30 XL Capital 4,061 3352 21 Net Premiums Earned 2003 2002 Increase ACE 4,378 2,936 49% Allied World Assur. 520 100 420 Arch Capital Group 913 181 404 AXIS Specialty 638 150 325 Endurance Spec. Ins. 482 93 418 Everest Re Group 1,597 994 61 IPC Holdings 145 103 41 Max Re 287 151 90 Montpelier Re 359 118 204 Partner Re 1,669 1,045 60 PxRE Group 169 105 61 RenaissanceRe Hold. 539 335 61 XL Capital 3,127 2,151 45 * Six months to June 30, 2003. Figures in millions. Source: Company reports, press releases. Rolling in the Dough Bermuda Re/insurers deliver fat profits in the first half of 2003 * Combined Ratio Net Income 2003 2002 2003 2002 % Increase ACE 91.1% 92.2% 618.0 302.0 105% Allied World Assur. 86.9 87.7 129.6 44.0 195 Arch Capital Group 90.7 94.0 114.3 23.2 393 AXIS Specialty 77.5 87.8 224.9 61.7 265 Endurance Spec. Ins. 83.8 81.9 118.0 34.6 241 Everest Re Group 94.5 98.4 203.9 114.5 78 IPC Holdings 32.3 32.3 133.1 92.2 44 Max Re 93.8 135.6 45.4 (2.4) N/M Montpelier Re 48.2 71.7 112.5 46.2 144 Partner Re 93.5 93.5 246.2 129.8 90 PxRE Group 76.4 63.9 45.1 37.3 21 RenaissanceRe Hold. 55.1 52.5 331.4 174.3 90 XL Capital 89.2 101.0 607.8 (2.3) N/M Total Assets 2003 2002 % Increase ACE 46,626 43,451 7% Allied World Assur. 3,367 2,547 32 Arch Capital Group 4,203 2,991 41 AXIS Specialty 4,386 2,986 47 Endurance Spec. Ins. 3,258 2,055 59 Everest Re Group 11,420 9,865 16 IPC Holdings 1,738 1,474 18 Max Re 3,213 2,643 22 ** Montpelier Re 2,383 1,834 30 Partner Re 10,513 8,738 20 ** PxRE Group 1,320 1,237 7 RenaissanceRe Hold. 4,656 3,748 24 XL Capital 39,167 35,647 10 * Six months to June 30, 2003. Figures in millions. ** Non-life. N/M: Non meaningful. Source: Company reports, press release.

COPYRIGHT 2003 Axon Group

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