AM Best: Underwriters have solid year

WEDNESDAY, DEC. 5: Ratings agency AM Best said 2012 is shaping up as a solid year for underwriting performance, and the Bermuda market composite is in a position to post a return on equity (ROE) of slightly better than 10 per cent.

A BEST press release  said: “Hurricane Sandy is still somewhat of a wild card, but even in a worst-case scenario, most Bermuda market companies should be able to hold their footing based on results through the first nine months of the year.

“Roughly three years ago, for 2009 the composite posted a 16 per cent ROE.

“Three years before that, in 2006, the composite average was a 19 per cent ROE—with favourable loss-reserve development of less than 2 per cent and no net realized gains.

“At that time, most market participants and observers knew that 2006 was likely the high-water mark for property and casualty returns. What most didn’t know then was that by the end of 2012, the Bermuda market would struggle to post the round number of 10 and would be challenged to post double-digit returns over the intermediate term.

Perceptions

“However, it is all relative. Perceptions change, modes of thinking rearrange, and the collective mindset in the corporate and investing world has evolved.”

The press release added the financial crises have a way of doing that.

“While people may long for the days of 16 per cent or 19 per cent average ROEs, 10 per cent in 2012 appears relatively attractive when compared with an annual yield of roughly 1.6 per cent on 10-year U.S. Treasury bonds.

“Still, the (re)insurance sector has been out of favour for some time with investors. Net investment income, once the stabilizing ballast for (re)insurance companies’ earnings, now is more like a dragging anchor holding back earnings. Making it more difficult is the longer-term threat of rising interest rates and inflation.”