Optimism about Bermuda's international business industry boomed between July and September, with a stream of announcements that highly capitalised insurance and reinsurance companies were being formed locally. The Island's banks also announced record results during the quarter, but elsewhere in local business, recovery from the recession was patchy. Here The Royal Gazette reviews the ups and and downs of the third quarter of 1993.

Bermuda's astonishing boom in international business continued as yet more new insurance and reinsurance companies flocked to the Island, bringing the total new capital for 1993 to over $3 billion.

Among the new companies were Starr Excess Liability Insurance, with committed capital of $500 million; IPC Re, capitalised at $300 million; Underwriters Capital (Merrett), $70 million; Chubb Atlantic Indemnity, $20 million; Centre Cat, $300 million, and Partner Re., which expects to be capitalised at $700 million after a public offer of its shares.

The wave may not stop there, however. Yet more major insurance firms can be expected to set up on the Island before the end of the year to fill a still-chronic shortage in property catastrophe cover, said Minister of Finance the Hon. David Saul.

As a result of the activity in the Bermuda market, the Island's insurance and reinsurance executives were said to be "the toast of Monte Carlo'' at the industry's annual Rendez-Vous de Septembre conference.

Anyone wondering why investors were pouring their money into the industry needed only to look at the latest round of financial results to get their answer.

Despite the formation of excess liability insurer Starr Excess, which is in the same market, EXEL reported a third quarter profit of $99.157 million -- up 21 percent ($17.293 million) on the same period in 1992. Its nine month profit increased up to $291 million.

EXEL said it did not expect Starr Excess to have an impact on its performance.

Property catastrophe reinsurer Mid Ocean carried a successful $240 million-plus initial public offering of its shares and later reported a profit of $44.5 million for its first nine months in business.

Excess liability carrier ACE reported a profit of $57.9 million for the third quarter of fiscal 1993 -- up by 20 percent on the same period the year before.

ACE's nine-month profit came to $161.2 million.

ACE also announced agreement to buy directors and officers insurer CODA for $250 million after managing it since August, 1987.

Mutual Risk Management reported a second quarter profit of $4.775 million -- up by 21.2 percent on the same period in 1992. The result brought MRM's half-year profit to $9.21 million.

For every sack-full of winners, though, there are always a few losers and one of those during the quarter under review was Bermuda-based property reinsurer Bristol Re, which went into run off due to continued heavy losses sustained in the 1989/91 underwriting years.

A loss of $9.39 million during the last fiscal year left the firm with capital and surplus of just $1.125 million at December 31, 1992. Bristol Re is owned by Greek shipping magnate Mr. Stavros Niarchos.

Hurricane Hugo, the great European storms, and the crash of a Chinese Airlines plane, for which Bristol Re had no reinsurance cover, ensured the company got off to the worst possible start after it began writing business in 1989.

On the captive insurance side of the sector, National Association of Insurance Commissioners moved closer to adopting the Model Fronting Act when it was approved by its Special Issues E Committee.

The proposal, which will increase the cost of operating offshore captives who use fronting companies, now goes to a meeting of the NAIC's executive in December of this year.

Still on insurance, Mr. Doug Ruedlinger, the owner of Bermuda-based Fund Insurance, which insures high school students against catastrophic injury, was accused of embezzling premiums in the US.

While his US companies were failing, Ruedlinger admitted paying himself "between $600,000 and $1 million per year'' and running a company jet at an estimated cost of $500,000 per year.

Lest anyone should forget, the insurance and reinsurance industry is not the be-all and end-all of Bermuda's international business sector.

One of the emerging areas was in the re-registration in Bermuda of companies which are owned and operated in communist China, of all places.

Three China-based manufacturing companies, Ek Chor China Motorcycle Company, Brilliance China Automotive Holdings and China Tire Holdings, transferred their domicile to the Island in order to seek listings on the New York Stock Exchange.

Mr. Peter Bubenzer, a partner in law firm Appleby, Spurling & Kempe, which represents all three companies, said China's communist government recognised "the practice of capitalism as an essential part of their survival and an essential part of the continuing development of their people''.

The Bermuda Monetary Authority released figures showing that, despite the recession, local residents spent $40 million more on foreign imports during 1992 than they did in 1991.

The amount spent on imports in 1992 was $487 million -- a nine percent increase on 1991 and possible evidence that the recession had not led to the shortage of spending money that many people believed.

The BMA reported that Bermuda had a provisional balance of payments current account surplus of $11 million for 1992 -- a modest $3 million improvement on 1991.

An increase of 6.6 percent ($67 million) to $1.087 billion in the amount of foreign currency leaving Bermuda was more than offset by a growth of receipts of 6.8 percent ($70 million) to $1.098 billion.

The amount of foreign currency spent by visitors who arrived by air fell by 2.8 percent ($12 million) to $410 million -- the lowest total since 1986. By contrast, cruise passengers increased their expenditure by 3.1 percent ($1 million) to $33 million.

While most of Bermuda's exempted companies appear to be making money hand over fist, local companies announced mixed financial results.

On the up-side the Bank of Bermuda reported a profit of $35.9 million for fiscal 1993 -- 26 percent up on the previous year and the largest ever profit by a local company.

Unfortunately for the Bank of Bermuda, on the same day as it announced its results, it was revealed by the Federal Bureau of Investigation that the Bank had unwittingly been used to transfer millions of dollars that was allegedly embezzled from Northern Californian banks by US businessman Craig McFarland, who was arrested in Monaco after disappearing for a year.

More bad news for the Bank of Bermuda came when The Banker magazine again rated the Bank of Butterfield as the Island's top bank based on their fiscal '92 results.

Butterfield's return on capital was 14.7 percent, compared with Bermuda's 11.9 percent.

In terms of asset size, the Bank of Bermuda climbed from 684th to 664th on the list of the world's largest banks, while the Bank of Butterfield went up from 813th to 795th.

Devonshire Industries, which owns Bermuda Paint Company, reported a fiscal 1993 profit of $331,414 -- down by 30.8 percent on the previous year. Sales for the 12 months to March 31, 1993, fell by 5.9 percent ($153,811) to $2.469 million.

The Argus group of insurance companies reported a profit of $6 million for the 12 months ending March 31, 1993 -- up by 14.5 percent ($763,000) on 1992.

Total income went up by 28.4 percent ($9.53 million) to $43.04 million, while total expenses increased by 31 percent ($8.77 million) to $3.017 million.

Bermuda Aviation Services reported a profit of $15,086 for fiscal 1993, compared with a loss of $122,236 the year before.

A new company, the Bermuda Financial Centre Ltd, announced plans to buy the empty Bermudiana Hotel from Forte Hotels for $14.5 million and redevelop it as a business and hotel complex.

BFCL also disclosed that it was holding a public offering of its shares in an attempt to raise $4.6 million.

Mr. Frank Mutch and Mr. James Pearman, partners in law firm Conyers, Dill and Pearman, and Bank of Bermuda general manager Mr. Cummings Zuill were named as co-defendants in a $34.8 million lawsuit brought by the liquidators of three Bermuda-registered commodity sulphur trading companies, Deltrade International, Nitrosul and Nitrophos.

Bermuda Commercial Bank applied to wind up Warwick Hotel Company, which is principally owned by Mr. Kenneth DeFontes and Mr. Conrad Engelhardt. The company owns four apartments known as Harbour House, at Cobbs Hill, Paget; 1.8 acres of land at Mount Royal, opposite Fourways Inn in Paget; and the pool wing across from The Palm Reef Hotel (formerly The Inverurie).

Bermuda Commercial Bank managing director Mr. Richard Francis took the unusual step of warning against speculative investing in BCB's shares after its stock price from $6.25 to $141 following the take-over by oil magnate Mr. John Deuss.

Mr. Francis said the market value of BCB's shares was about double BCB's book value and represented a price/earnings ration of about 20 to 1. "These are aggressive ratios by banking standards and I would not like to see any investors hurt by the current upswings,'' he said. Not long after his comments, BCB's share price dropped by some $3.

Bermuda-related shareholders won an injunction in the US to prevent American businessmen Dr. Gilbert Beinhocker and Mr. Gregory Plunkett from running an investment holding company called EPA.

US District Court Judge Mark Wolf said it appeared as if Dr. Beinhocker and Mr. Plunkett had used EPA as their "personal piggy bank'' and an action for fraud and breach of fiduciary against them was "likely to succeed''.

Mr. Wolf said it appeared to him as though they had taken money out of EPA "without regard for their obligations under law''. The assets of EPA have dwindled from their original $750,000 to just $200,000. A receiver was appointed to take over the company.