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US and Bermudian (re)insurers cash in as market peaks

ACE reported healthy second quarter figures with operating earnings of $380mn, or $1.29 a share, marginally up on consensus analysts' estimates of $1.25, and 33 percent higher than the $286mn or $1.01 a share recorded in the second quarter of 2003.

Net income for the quarter rose $42mn from $371mn to $413mn, or $1.41 a share, on the back of a strong increase in business written (overall net premiums written were up 19 percent to $2.9bn).

Todd Bault, of equity house Bernstein, said there should be little surprise at ACE's growth strategy in light of recent comments from ACE chairman Brian Duperreault.

"Duperreault was very clear: with current profitability so high, now is the time to add risk, not shrink from it. And yes, that will push down prices in the market, so underwriting becomes crucial," said Bault.

"This is totally in line with our post-cycle thesis," Bault continued. "We would simply note that both history and industry mechanics suggests that profits will hold up even as pricing and premium growth slows. Keep that in mind as the 'inquisitions of discipline' begin."

Everest Re also unveiled strong second quarter results, and listeners to the company's conference call were treated to candid comments on rates and the state of the market, with softening across most lines of primary and commercial reinsurance.

Despite these concerns, net income rose 140.9 percent to $264mn, or $4.64 a share, against $109.6mn, or $1.99 a share in the second quarter of 2003. For the year to date, total net income totalled $390.1mn, an increase of 91.3 percent on the first half of 2003.

Combined ratio for the first half of 2004 registered 91.1 percent, compared to 94.5 percent in 2003.

Chairman and CEO Joe Taranto commented: "I wish I could tell you that I see meaningful pockets of the market that are getting stronger, but that is not particularly what I see. In the main for most classes, terms and conditions have held up, but again I see some of that starting to change as well. At the end of the day, this market is going perhaps the way you'd expect it to go, not the way you would necessarily like it to go."

Property cat specialist IPC Re announced another set of strident results on 20 July as it booked net income of $72.1mn, or $1.49 a share for the second quarter, up from $63.2mn, or $1.31 a share in the same period last year.

This took total net income for the first half of the year to $140.1mn, or $2.90 per share, compared to $127.0mn, or $2.63 a share at the same stage last year.

President and CEO Jim Bryce commented: "It would be repetitive of me to comment on the record nature of our earned premiums, loss ratio and cash flow in the quarter, as the numbers speak for themselves. Our gratifying results are once again reflective of our financial strength ratings, consistency of staff, consistency of underwriting approach and discipline, combined with a very benign quarter in terms of catastrophe activity."

But Max Re announced second quarter earnings below analysts' expectations as investment income fell short of target. The (re)insurer booked net income of $12.6mn, or $0.26 per share, compared to $30.8mn or $0.81 a share in the same period last year. Net operating income was $15.2mn, or $0.32 per share, down on last year's $36.0mn, or $0.79 a share, and down against analysts' first call of $0.40 a share.

At the halfway point of 2004, net income totalled $55.6mn, up from $45.4mn last year, with operating income of $52.4mn, compared to $50.7mn at the same stage of 2003.

Chairman, president and CEO Bob Cooney commented: "For the second quarter Max Re showed continued improvement in its combined ratio, strong premium growth in our traditional insurance business and modest premium growth overall. This allowed us to produce reasonable earnings, despite a difficult investment quarter where our alternative investment portfolio posted an unusually small return."

In the same week that its parent company Fairfax Holdings released its results, (re)insurer Odyssey Re posted a 39.7 percent increase in post-tax operating income for the second quarter of 2004.

In its 29 July statement the company said post-tax operating income reached $38.0mn, or $0.58 per common share, against $27.2mn, or $0.42 per common share for the second quarter 2003.

Meanwhile, the (re)insurer's net combined ratio for the second quarter 2004 came to 94.8 percent compared to 96.4 percent for the second quarter 2003.

Partner Re reported operating earnings of $104.9mn, or $1.93 for the second quarter, up from $89.9mn, or $1.67 a share in the same quarter of 2003.

The (re)insurer recorded net income of $119.8mn, or $2.12 a share for the quarter, marginally down on the comparable quarter last year, but still contributing to a record first half of 2004, with $265.5mn net income, or $4.71 per share.

And the first six months of 2004 have proved to be a record across the board, as Partner Re booked its highest net premiums - $840.7mn in the second quarter taking the total to $2.4bn for the year - and recorded operating earnings of $214.6mn, or $3.95 a share.

President and CEO Patrick Thiele added to recent comments on the state of the market, warning of growing signs of a downturn in rates: "At the July 1 renewal, we saw pockets of strength in both U.S. and European casualty lines. However, the general trend is toward greater competition in both primary and reinsurance markets, and for the non-life reinsurance market as a whole, we expect to see flat to declining prices going forward."

PXRE continued its drive to become a Cat and Risk Excess only reinsurer as it reported second quarter net income up 51 percent, but revenues and net premiums down 20 and 17 percent respectively, with the withdrawal from the last of its Finite risk business.

The reinsurer booked net income of $32.2mn for the quarter, up from $21.5mn in the prior-year period. Net operating income was up 61 percent at $32.8mn, or $1.21 a share, from $21.2mn or $0.92 a share.

President and CEO Jeff Radke, who took the reins from father Gerald last July, commented: "Our Cat & Risk business continues to perform exceptionally well in this attractive rate environment. The market continues to behave as we anticipated with only moderate rate reductions in peak zones. We have continued to increase our US catastrophe and worldwide retrocessional books of business, as the returns offered at these rate levels remain attractive."

High performance outfit Renaissance Re smashed analysts' consensus estimates for the second quarter as it reported operating earnings per share of $2.00, against a projected $1.65, driven by strong underwriting results and favourable reserve development.

Chairman and CEO Jim Stanard commented: "Our strong premium growth reflects two conflicting trends. First, Renaissance has preferred positions on various attractive reinsurance and insurance programs as a result of our strong customer relationships and credit ratings. Second, however, we continue to see price declines, and increasingly have had to turn down business that does not meet our return requirements."

Todd Bault said that the group's 10 percent book value growth, in the face of a realised investment loss of $27mn and other factors hitting net income, "is testament to Ren Re's strong profit discipline, and unprecedented for our coverage".

Despite strong underwriting results, fast growing Bermudian-based (re)insurance group White Mountains saw its second quarter earnings hit by rising interest rates, as $139mn of after-tax unrealised losses on its fixed income portfolio contributed to a $38mn comprehensive net income figure, down from $163mn recorded in the same period last year.

The group also took $6mn in pre-tax realised losses in the quarter, compared to $90mn pre-tax unrealised gains for the second quarter of 2003, but the negative impact was more than outweighed by strong underwriting from existing units bolstered by the recent acquisition of Sirius.

"The Sirius acquisition resulted in a gain of $111mn. Sirius is also generating significant underwriting profits on annualised premiums in excess of $500mn," said CEO Ray Barrette.

Fully converted tangible book value per share hit $313 at the end of the second quarter, up 12 percent from the same stage of 2003, and 8 percent on last year-end.

And XL Capital delivered record first half results with second quarter net income of $363.6mn, or $2.62 per share, also a record for the period, and the second most profitable quarter ever for the company, following on from the $452.2mn it recorded in the first quarter 2004.

Year-to-date, net income was up 39 percent compared to the same stage last year, as it hit $815.8mn, or $5.88 a share on the back of better-than-expected underwriting results. The group's combined ratio also improved, falling 4.6 percent to 87.6 percent.

Todd Bault noted that XL, like a number of other (re)insurers, was focussing more on generating insurance premium growth than reinsurance premium growth at present. When broken down, the 24 percent premium growth in non-life sectors consists of 36 percent in the insurance business, and just 3 percent in reinsurance.

Morgan Stanley's Vinay Saqi said that despite the impressive underwriting results, questions remain over the growing adverse reserve situation at the Winterthur International operation bought from Winterthur Swiss in 2001.

Although an agreement exists between the two companies under which Winterthur Swiss would reimburse XL for any adverse reserve development, Saqi noted that the recoverable figure has already rocketed to $925mn, up from $750mn at the end of the last quarter.

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