industry. Business writer Ahmed ElAmin reports Bermuda's tax free status has boosted locally-based reinsurers into the top rankings based on return on equity, according to Reactions magazine.

"To assess reinsurance companies in terms of return on equity, it is only fair to divide them into two distinct categories: Bermuda catastrophe reinsurers and the rest,'' the magazine states in an article headlined "Please the shareholders, go to Bermuda''.

The article goes on to say Bermuda's catastrophe reinsurers are in a class of their own as the nature of their business involves a high return for high-risk reinsurance. It adds their tax free status makes a "sizeable contribution'' to their profitability.

Taxes can lower returns from between five to eight percentage points in other countries.

"It would seem that if return on equity is the paramount concern, reinsurance companies should all decamp to Bermuda,'' the article states.

In a top ten listing for 1996 (see table), eight of the companies are based in Bermuda. Renaissance Re Holdings and LaSalle Re Holdings each gave shareholders' returns of about 30 percent. Renaissance Re Holdings had a return on equity of 44 percent in 1995.

The other Bermuda-based reinsurers in the top ten are GCR, Terra Nova, Mid Ocean, IPC, Tempest Re (which was bought by ACE Ltd.), and Partner Re.

Meanwhile, Centre Re sank to 25th place in 1996, when it had a return of 12.5 percent, from fourth place in the rankings in 1995 when it had a return of 24.5 percent.

"Returns of 20%-plus are normal for Bermudian reinsurers, even though their capital is not very intensively employed by comparison with traditional reinsurers,'' the article states in the September issue of the magazine.

The magazine calculates return on equity by dividing the net profit or net income for the year by the average of shareholders funds at the beginning and end of the relevant accounting period.

Normally US reinsurers write net premiums of up to 150 percent of shareholders' funds.

"Most of the Bermudian reinsurers, on the other hand, can barely manage to underwrite to even half the value of their capital, such has been the decline in catastrophe reinsurance rates,'' the article states. "Accordingly, those that have most acutely underutilised their capital, like Partner Re and Tempest Re, have tended to produce inferior returns to those which have written relatively more business, such as GCR, LaSalle and Renaissance.

Renaissance's "extraordinary'' profitability in 1995, when it had a return of 44 percent, is based on its ability to write net premiums equivalent to 70 percent of its shareholders' funds, a higher proportion than its competitors.

Chief financial officer Keith Hynes is quoted as stating the company seeks to optimise return on equity instead of trying to minimise its loss ratio.

Mid Ocean's performance would be higher due to its strategy of diversification out of catastrophe reinsurance. It has become more akin to a traditional multiline reinsurer, the article states.

Shrinking premium income due to lower rates has led some companies to take the strategy of initiating share repurchases. LaSalle has taken another tack by promising to pay dividends equivalent to at least 50 percent of its previous year's net income. LaSalle has also protected itself from extreme losses by buying a three-year "CatEPut'' option which provides for $100 million of capital if losses from a single occurrence exceed $200 million, or an number of losses exceed $250 million.

In a separate article the magazine notes half year results for Bermuda's reinsurers showed a continuation of a pattern of 1996 -- generally falling premium income and loss rations, and in a few cases, falling net income.

"The biggest premium losses occurred at LaSalle Re and Renaissance Re,'' the article stated. "In LaSalle's case, it is surprising since it has diversified away from catastrophe reinsurance, although the decline in premium all occurred in the first quarter and reflects weakness in catastrophe rates.'' MAGAZINE NJ TAXES TAX