In a 1997 equities market marked by more than 30 percent gains for indices measuring insurance and broader market stocks, reinsurers and Bermuda-based companies lagged, analysts at Lehman Brothers have reported. But for the third year in a row of impressive stock appreciation in general, the Bermuda insurers and reinsurers again did very well.

In the annual recap of property casualty and reinsurance stocks, the Lehman Brothers report described "reinsurers and Bermuda-based insurers'' as a mixed bag, "probably the result of the more challenging operating environment faced by these companies''.

But five out of the nine surveyed Bermuda companies beat the S&P 500 in terms of stock appreciation, with the nine stocks rising an average of 43.3 percent, finishing 56 percent ahead of the market. The stand-outs in the "reinsurers and Bermuda-based insurers'' grouping were Bermuda-based insurers ACE Ltd. and EXEL Ltd., with appreciation of their stock prices of nearly 61 percent and more than 67 percent, respectively.

The Lehman Brothers report established ACE's price to book value at the end of the year at a staggering 219 percent and even higher for EXEL, at 246 percent.

In fact, the share price of ACE stock climbed an astonishing 70.1 percent in 1995, a warming 51.3 percent in 1996, before appreciating nearly 61 percent in 1997.

This month J.P. Morgan Securities recommended ACE as a "buy'' with a 12 month target price of $110 a share. It was trading yesterday at $91.50.

Donaldson Lufkin and Jenrette Securities Corp. also set a 12 month target price of $110 per share for ACE as they reinstated the security on the "recommend list''.

Dowling & Partners Securities rated ACE "hold'' with a headline stating "ACE's repositioning over the past three years continues to show its benefits on the premium side.'' A key architect of that repositioning, ACE chairman, president and CEO Brian Duperreault filed a fortnight ago with the US Securities and Exchange Commission to sell 65,000 ACE shares, valued today at nearly $6 million.

And EXEL investors have also been smiling all the way to the bank. The company's share price rose 54.1 percent in 1995, 24.4 percent in 1996 before skying 67.3 percent in 1997.

The average appreciation in share price during 1997 of the nine Bermuda companies tracked by the financial services analysts (including IPC Re, LaSalle Re, Mid Ocean Re, PartnerRe, RenaissanceRe, Sphere Drake and Terra Nova), was 31.4 percent.

It included Sphere Drake, an insurer purchased by Toronto-based Fairfax Financial Holdings Ltd., which suffered a net decline in share price of 5.6 percent.

All of the other surveyed companies recorded increases, including 43.9 percent for IPC Re, 20.9 percent for LaSalle Re, 36.4 percent for PartnerRe, 33.7 percent for RenaissanceRe and 22.1 percent for Terra Nova.

The surprising number in the report is the modest 3.3 percent appreciation in Mid Ocean stock, compared to its Bermuda-based competition. On December 31, Mid Ocean was trading at $54.25, although on November 7, it was climbing toward $67.

Overall, the Lehman Brothers report states that 1997 was another good year for insurance stocks and the broad market.

Their large-cap Lehman Brothers P/C (property casualty) index, a market weighted index consisting of 18 of the largest insurance companies (across all sub sectors) was up 44.1 percent in 1997. The Standard & Poor's (S&P) 500 gained 31 percent.

The year's solid performance, said analysts Peter Wade and Anil C. Stevens, was supported by better than expected earnings results (especially through the first half of the year) and a rising bond market that lifted most financial services sector stocks.

Within the financial services sector, eight out of ten stocks outperformed the S&P 500, posting an average gain of 46 percent.

The average insurance stock out of the 103 tracked by Lehman Brothers, appreciated 43 percent on a market cap weighted basis relative to the 31 percent gain posted by the S&P 500.

Chart by Hope Robbins GOOD RESULTS -- While some local insurance companies' stock prices have lagged behind the broader market, ACE and EXEL have outperfomed the Standard & Poor's Index over the past 12 months. -- Bloomberg How publicly listed Bermuda-based insurers performed in the 1997 calendar year: EXEL 67% ACE 61% IPC Re 43.9% PartnerRe 36.4% RenaissanceRe 33.7% Terra Nova 22.1% LaSalle Re 20.9% Mid Ocean 3.3% Sphere Drake* -5.6% *Since taken over by Canadian-based Fairfax Financial Holdings Ltd.

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