Confidence is high as IPOs fly but annuity and life is problem, according to a report on the Bermuda market by Insurance Day.

“Looking at the most recent results and forecasts of Bermuda's main property/ casualty (p/c) players it is easy to see why there is such confidence on the island,” said the report last week. It said that the new players that set up two years ago have almost all completed successful initial public offerings (IPOs) and have been taking advantage of the hard market conditions.

It added that they do not have the legacy issues that continue to cause turmoil on the balance sheets of their longer-established non-Bermudian counterparts. “Even the Old Kids on the Block, Ace and XL, which have both taken significant reserve strengthening actions for prior-year losses over the past 12 months, have not experienced the deep ratings cuts that we have seen elsewhere,” it added, but said: “Not all sectors are blossoming on this mid-Atlantic island.”

It said that ten years ago that Bermuda was ideal for catastrophe reinsurance low-frequency, high-severity business and now it seems to be playing an active role in the wider p/c insurance market. “But one line that seems to have a particularly bad run in Bermuda is annuity and life reinsurance,” it added.

“Last month notices appeared in the local press here announcing that Hampton Re, a company that was set up in 2001 with backing from JP Morgan to provide life and annuity life reinsurance, had gone into liquidation. The company closed its doors to new business earlier this year.”

At its inception, Hampton Re was capitalised at $218 million, JP Morgan held a 7 percent stake with the majority of the balance held by its private bank customers.

Hampton Re's books of business have been sold off, allowing around two thirds of the investors to get their money back.

“Sources suggest around a third of Hampton Re's investors have been left out of pocket to the tune of a total of $72.7million,” added the report. “Hampton Re's failure has been blamed on the difficult conditions in the markets in which it operated. Its main business was investing in hedge funds.”

But it said that Hampton Re was by no means the only life reinsurance company to experience difficulties in Bermuda.

In February this year Annuity & Life Re (ALRe) also closed its doors to new business amid poor earnings results.

“There is some good news. ALRe is no longer facing delisting procedures from the New York Stock Exchange and provided it can reduce Citibank's unsecured letter of credit exposure to less than $17m by the end of this week, Citibank will renew all letters of credit outstanding at December 31, 2003 to the end of next year,” said the report. And is said there were further examples of life reinsurance shake-ups in Bermuda - Centre Solutions put its life and health business into run-off along with its credit enhancement lines, preferring to concentrate on finite p/c insurance and reinsurance operations.

And Max Re, which launched in a blaze of glory with a significant finite life and health arm, has dramatically refocused to concentrate on traditional p/c reinsurance.

But it pointed to better news at Scottish Re which has operating fundamentals and capitalisation described by ratings agent AM Best as “sound, enhanced by conservative investment management practices, profitable operations and favourable growth trends in new reinsurance business”.

“It is difficult to say why some life and annuity reinsurance operations have not been successful in Bermuda, but it is perhaps significant that major groups around the world have decided to sell, put into run-off or spin off all or some of their life reinsurance operations ERC is the most prominent to make such a move,” said the article. “Some companies do continue to write life reinsurance and will no doubt do so in the future.

“And despite the high-profile difficulties Bermuda remains one of the few places in the world to have built successful composite groups, encompassing p/c insurance and reinsurance within the same holding company.”