An executive summary of developments in the Bermuda insurance sector

HURRICANE KATRINA

Four days after the storm passed New Orleans, the appalling human cost of Hurricane Katrina continued to rise. The few estimates of insured property damage have ranged from $10 to $26 billion, but most companies lack hard data on which to base an estimate.

Initial comments from the Bermuda market are not expected before September 6. The decision whether to rebuild the city has not been taken, but it is unlikely to affect the insurance sector, since losses under many property catastrophe coverages are already likely to be at the maximum permitted by contract. The region is not as intensely insured as conurbations on either US coast. Business interruption may prove more costly than was first thought.

It is equally too soon to assess how global capacity will respond. Following last year's hurricane experience, it is likely that any remaining marginal reinsurers will exit the market; the US companies were not in especially good shape before Katrina, with a first half combined ratio of 105.9. It is also too soon to consider a "next wave" of new Bermudian capital, but should any new major companies be formed in Katrina's wake, Bermuda is the logical candidate jurisdiction.

Standard & Poor's Ratings Services placed its 'A+' counterparty credit and financial strength ratings on Oil Insurance Ltd. (OIL) on CreditWatch with negative implications. OIL has exposure to damage to oil, gas, and energy operations in Louisiana and Mississippi.

OPERATIONS

Chubb Re is to relocate its Chubb Re Bermuda operation to New Jersey, with the loss of "a few" local jobs. The larger Bermuda-based Chubb Atlantic Indemnity Ltd. and its employees will remain on the Island.

OneBeacon, the largest US unit of White Mountains Insurance Group Ltd. has "received a civil investigative demand requesting documents and seeking information" from Massachusetts Attorney General Tom Reilly. The company believes the subpoena is "part of the ongoing, industry-wide investigation" into illegal bid rigging.

XL America, Inc., the holding company for XL Capital Ltd's US operations, has entered into an agreement with the Argonaut Group to acquire the renewal rights to a substantial portion of Argonaut Insurance Company's US risk management book.

CAPITAL TRANSACTIONS

AXIS Capital Holdings Limited has entered into a $1.5 billion credit agreement with a syndicate of lenders. This renewal is an unsecured five-year facility allowing the company to issue letters of credit up to the full amount of the facility and to borrow up to $500 million for general corporate purposes.

PEOPLE

Allied World Assurance Company, Ltd. has appointed Frank N. D'Orazio senior vice president and global manager of the general casualty division. He will set and drive the overall strategic direction for AWAC's buffer liability, excess casualty, and product recall insurance capabilities globally.

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Everest Re Group, Ltd. has extended the employment agreement of Joseph V. Taranto, chairman and chief executive officer to March 31, 2008.

FINANCIAL REPORTS

Alea Group Holdings (Bermuda) Limited delivered weaker than expected half-year net income after boosting reserves. The company is to raise $210 million following Standard & Poor's placing its A- counterparty credit and insurer financial strength ratings on CreditWatch with negative implications. Pretax profits for the six months to June 30 fell by 47 percent to $25.9 million.

Volume 1 Issue 1

Week ended September 1, 2005

Published by The Bottom Line, a division of Crown Communications.

2 Par-la-Ville Road, Hamilton HM 08, Bermuda.

General manager: Keith Jensen. Managing editor: William Zuill.

Editor: Rebecca Zuill. Writer: Roger Crombie