Bermuda’s reinsurance market claimed $11.6 billion in net income during 2006 compared to the hurricane-ravaged losses of 2005 when there was a $2.1bn net loss.

ACE led the way, accounting for 31 percent of the gross written premiums last year (see pie chart). The total capital of the group of Island-based companies in industry analysis and research team Benfield’s Bermuda Quarterly report was $64bn.

A lack of major hurricane damage in the US during 2006 was a major contributing factor to the bumper year that saw led to the 24 percent growth in the shareholders’ funds of the Benfield Bermuda Quarterly group, and that equates to an almost doubling in collective capital since 2002.

Nearly all the companies recouped their 2005 hurricane losses.

But the good times might not extend another year, warns Chris Klein of Benfield’s industry analysis and research team.

“The record returns will be difficult to sustain. Results from 2007 will be challenged by either decreasing rates or increased claims if predictions of greater hurricane activity are fulfilled. It is not surprising that capital management remains firmly on the agenda.”

The more competitive conditions for renewals and the reduced reinsurance demand from Florida following the state’s legislation changes will have an impact, predicts Benfield.

And losses resulting from January’s windstorm Kyrill in Europe within the Benfield Quarterly group, based on company announcements, are between $300m and $500m. Axis, XL, PartnerRe and RenaissanceRe have put forward early estimated losses relating to Kyrill that variously range from $40m to $75m.

Reflecting on 2006, the report notes: “Strong retained earnings were the key driver, representing over three-quarters of the increase in capital. Most companies recouped their hurricane losses of 2005 and 2006. The aggregate combined ratio decreased from 116.6 percent to 86.3 percent with the very light catastrophe burden complemented by favourable development of prior years’ loss reserves.”

Last year also saw a record aggregate return on equity of 20.1 percent.

While 2006 was a highly successful year for the Bermuda companies as a group, the total premium income was three percent lower at $58bn, which masked an underlying mixed trend. Half of the companies in the Benfield Quarterly group reported increased premiums.

It is noted that lower catastrophe exposures, higher retentions, decreased reinstatement premiums and the non-recurrence of two large life transactions were significant factors.

Sidecars in Bermuda have also been scooping up a sizeable chunk of capital, more than $3bn in equity and loan capital, most of which supports catastrophe risk in North America.

The arrival of a further five start-up companies in 2006 also helped brighten Bermuda’s picture, as they raised a combined $1.1bn in capital — roughly half of the total capital generated by start-ups around the world last year. The biggest of the Class of 2006 is Aeolus Re, which increased its capital to $1bn in January this year. The other start-ups are Advent Re, Empyrean Re, New Point Re and Norton Re.

Individual fortunes of Bermuda’s main insurance/reinsurance companies are shown in a table of gross premiums written that reveals none reported double-digit growth in 2006, while there was substantial double-digit decreases for Max Re (-31 percent), Montpelier (-26 percent) and Platinum (-28 percent).

Max Re’s declines were caused by reduced life and annuity business and lower additional premiums on prior contracts. Platinum’s cancelled finite and crop contracts and shifted from proportional to excess of loss contracts affected its performance, while Montpelier’s reduction of written premiums included the transfer of its retrocession book to Blue Ocean Re, reduced reinstatement premiums, lower aggregate exposure and, like Platinum, a shift from proportional to excess of loss business.

On the issue of sidecars, the report states: “Despite traffic congestion, Bermuda remained the most popular place for driving sidecars.

“During the year more than $3bn of equity and loan capital was raised to finance Bermudian sidecars.

“Most were formed to support North American catastrophe risk, although other risks were encompassed. Sponsor cedants included established and start-up reinsurers and insurers. Motives were essentially either defensive, with relief from high risk-capital charges helping sponsors to protect market share, or offensive whereby companies sought to expand capacity to exploit short-term opportunities.”

Of 12 sidecars listed, with a combined capital of $2.3bn ($3.3bn including loan capital), the largest in terms of capital is Kaith Re with $414m, its sponsor cedant is Hannover Re and it covers multiple risks.Copies of the report are available on Benfield’s web site at www.benfieldgroup.com