One of the world's most highly regarded business periodicals, The Financial Times, has said that Bermuda's reinsurers are better positioned to ride out the storm in the market than their on-shore competitors.

The favourable article, which appeared in Monday's edition of the newspaper, said that despite diminished returns, the `tax haven' of Bermuda had retained a sense of calm.

The feature, in a supplement on reinsurance, stated: "Bermuda's reinsurers are not as flushed with success as they used to be, but compared with their onshore counterparts, they are well positioned to ride out a market weighed down by inadequate pricing and deteriorating underwriting results.'' It said that recent events - natural, global and fiscal - have made some waves in Bermuda's otherwise smooth progression from captive insurance backwater to risk transfer powerhouse.

And added that since 1993, when half a dozen catastrophe reinsurance specialists set up in the aftermath of Hurricane Andrew, the Bermuda market has gone from strength to strength.

The article continues: "The big underwriters flourished and successfully diversified while the twin pillars of the high-level liability business, ACE and XL, transformed themselves into multi-line, global operations through a series of bold mergers and acquisitions.

"Meanwhile, the island's low tax regime combined with a light regulatory environment continued to draw in alternative risk transfer innovators, especially finite risk underwriters.'' Reinsurers well positioned, says paper But it adds that in 1999 Bermuda's reinsurance companies were hit by the "double whammy of large loss costs from storms in Europe and the US, plus intense downward pricing pressure caused by competition in the global markets''.

And as a result, earnings at Bermuda companies fell short of previous years, while combined ratios (the measure of underwriting profitability) crossed the 100 per cent mark.

The article says that according to the annual Deloitte & Touche/Bermudian Business survey, net income for the island's reinsurers was $2.11 billion in 1999 compared with $3.19 billion the year before; net writings increased by 78 per cent as a result of acquisitions but losses and loss adjustment costs doubled to $6.72 billion.

It said that underwriting losses alone were $657 million, versus an underwriting income of $475 million for the previous year. Return on equity dropped to an average of 9.4 percent from previous highs in the 18-22 percent range.

It said that insiders did not expect matters to improve this year with inadequate pricing against a background of adverse prior years' loss development means that 2000 will be as difficult as 1999.

But it added that despite diminished returns, Bermuda companies are still better equipped than their onshore counterparts to weather the storm.

The article quotes William Yankus, head of property-casualty insurance research at Fox-Pitt, Kelton in New York, as saying that Bermuda-based reinsurers have advantages not available to competitors based in other jurisdictions.

"Whether you are talking about tax, regulatory issues, operating without legacy systems or having a more efficient structure, there are a lot of advantages to being in Bermuda compared with an onshore organisation that will have a more difficult time manoeuvring.'' It also quotes Henry Keeling, chief executive officer of XL Mid-Ocean Re, as saying that Bermuda companies' ability to generate very strong investment returns on their funds has helped them see the soft market through on a reducing premium basis.

"Bermuda companies have very consciously reduced the amount of premium volumes that they write,'' the FT quotes him as saying. "We've kept our powder dry and are now in a better position than other companies, who are more dependent on retrocessional capacity.'' It adds that Bermuda's tax advantage with no investment tax allows for more effective capital management and means that Bermuda companies can price their business more keenly.

It goes on to talk of the Bermuda Tax issue and says: "A group of US insurers, led by Chubb and The Hartford, perceive this as unfair advantage and are lobbying at Federal level for a change in the tax treatment of US subsidiaries with Bermuda parent companies.

"Calls for change have grown louder following a series of defections from onshore US to Bermuda. Three prominent US reinsurers -- PXRE, Trenwick and Everest Re -- have recently relocated to Bermuda specifically to improve their financial efficiency.'' It goes on to say few insiders believe the initiative to be a real threat to Bermuda-based reinsurers, however. US competitors are not putting up a united front and the industry's most influential figure, AIG chairman Hank Greenberg, has stayed out of the argument.

It adds: "Fox-Pitt, Kelton's William Yankus says the lobby only serves to highlight Bermuda's advantages. `The companies that have brought the Bermuda tax challenge forward suggest that Bermuda companies can write business at a 8-10 per cent higher combined ratio and still make the same returns. All that does is make me want to go out and buy the Bermuda stock'.'' BUSINESS BUC