Bermuda (Re)-Insurers Report Hurricane and Investment Losses

October 6, 2008

A number of Bermuda-based insurers and reinsurers are due to start publishing their third quarter results at the end of the month. They will detail a combination of losses from the current hurricane season, as well as investment losses and write downs caused by the turbulent financial markets. So far the financial fallout has been rather minimal for Bermuda’s insurance industry.

A number of companies have already published estimates of recent losses, notably hurricanes Gustav and Ike, and more have been forthcoming. The following is a summary of some of the more recent reports from Bermuda of natural catastrophe losses and those from the Lehman Brothers bankruptcy, Washington Mutual’s (WaMu) bankruptcy and forced sale to J.P. Morgan/Chase, AIG, Fannie Mae, Freddie Mac and others.

The statements all noted that the estimates are preliminary, and are subject to change, as more information becomes known. The amounts given are also net of reinsurance recoverables, taxes and reinstatement premiums.

RenRe announced that it currently estimates that Hurricanes Gustav and Ike will have a combined net negative impact on the Company’s third quarter results of approximately $275 million, with the majority of these estimated losses attributable to Hurricane Ike.

“Net negative impact includes the sum of estimates of net claims and claim expenses incurred, earned reinstatement premiums assumed and ceded, lost profit commissions and minority interest,” the bulletin explained. “This amount is based on management’s estimates following a review of the Company’s potential exposures and discussions with certain counterparties.”

As for financial market losses RenRe said it “has current direct holdings of fixed maturity securities issued by Lehman Brothers Holdings Inc. and its subsidiaries of $8.7 million (par amount) within its fixed maturity investment portfolio.” It has “insignificant direct holdings of fixed maturity securities” issued by AIG and WaMu, and has “insignificant reinsurance recoverables and premiums receivable from AIG.”

RenRe said it has “no direct exposure” to preferred or common shares issued by Lehman Brothers, AIG, WaMu, Fannie Mae or Freddie Mac.

Platinum Underwriters Holdings
Platinum Underwriters Holdings, which operates mainly as Platinum Re, said its initial loss estimate from Hurricane Ike is approximately $105 million. The figure is based on “industry loss estimates, portfolio modeling, a review of individual contracts and discussions with clients and brokers,” the bulletin explained.

Platinum also said it “intends to record other-than-temporary impairments and realized losses in the quarter ended September 30, 2008 of approximately $18 million associated with certain securities held in its investment portfolio,” principally from Lehman Brothers and preferred shares of Royal Bank of Scotland and Fannie Mae.

The announcement noted that as of last June Platinum “held $4.4 billion of invested assets which were composed of diversified, primarily high quality and predominantly publicly traded fixed maturity securities. The average rating of the investment portfolio holdings was Aa1 and the duration was approximately 2.6 years. The Company does not hold any common equity securities and does not engage in alternative investment strategies such as investing in hedge funds.”

Everest Re

Everest Re said its preliminary net loss estimates for Hurricanes Gustav and Ike are expected to range between $200 million and $220 million. The group has not released estimates of any financial losses.

Arch Capital Group
Arch Capital announced that it expects pre-tax earnings for the 2008 third quarter to be negatively impacted by the effects of Hurricanes Gustav and Ike in the range of $105 million to $180 million. Its preliminary net loss estimate for Hurricane Gustav is in the range of $15 million to $30 million based on industry insured losses of $2.5 billion to $4.5 billion.

The preliminary net loss estimate for Hurricane Ike is in the range of $90 million to $150 million based on industry insured losses of $8 billion to $12 billion. The losses from the storms are approximately 30 percent from Arch’s insurance operations and 70 percent from its reinsurance operations.

On the financial side Arch said its investment portfolio doesn’t include direct ownership of common stock or preferred stock of any publicly traded issuers. It added that it has “no exposure to fixed income securities” issued directly by AIG, but it “held fixed income securities of subsidiaries of AIG in the amount of $16.9 million at June 30, 2008 fair market values.” Arch also held fixed income securities issued by Lehman Brothers of $26.3 million at June 30, 2008 fair market values.

Montpelier Re
Montpelier Re estimated the combined net financial impact from Hurricanes Gustav and Ike at approximately $130 million, based on a $15 billion estimated total industry loss.

Montpelier Re has given no estimates of any financial market losses.

Sources: as indicated

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