"Insurers face difficult road ahead, says new PwC survey"

November 2008, Bermuda - Hitting targets in a soft cycle is clearly a huge challenge for CEOs but the emergence of a series of other less-anticipated dislocations in the form of the credit crisis, higher inflation and a global business slowdown is making this phase of business very tough indeed. This is according to the latest Bermuda Market Survey conducted by PricewaterhouseCoopers.

The biennial survey asked Bermuda industry CEOs to update the Top Five issues on their agendas in 2008. With a downturn in the underwriting cycle and unpredictable economic conditions, the environment is very different to 2007.

Caroline Foulger, Partner, PricewaterhouseCoopers, said: “Two years on from our last survey, the future road for reinsurers is much less certain. A sustained soft market, fall-out spreading from the credit crunch and increasing competition for available talent are just a few of the challenges they expect. Companies are actively looking beyond their 2006 and 2007 business franchises to remove the current pressure from share price and sustain underlying shareholder value.”

Number one in the Top Five issues revealed in the survey is cycle management and underwriting discipline, which has taken on added significance in the softer rating environment of 2008. In 2007, Bermuda companies endeavoured to preserve the top line ahead of the cycle turn; this year the emphasis is on rate adequacy. Although CEOs broadly agree that the downturn will be no more severe than in previous cycles, they generally expect the market to show year on year premium rate cuts until 2010, across all business classes.

Second in the poll is new markets. Diversifying product lines has moved up the CEO agenda, partly as a response to the market entering a new, softer phase. The Class of 2005 “start-ups” are moving beyond their original products as their business models evolve.

Number three of the Top Five issues is managing the effects of turbulence in the financial markets. Few companies have escaped the sub-prime crisis totally unscathed and the unprecedented events, coupled with the ensuing credit crunch, clearly concerned CEOs.

New geographical markets ranked fourth. The desire for increasing diversification is reflected in CEOs pushing new geographical markets higher up the agenda. Bermuda companies have newly entered markets from the UK to the US, Continental Europe to Asia as they look for growth in a softening market. In particular, after much market focus on inversions from London to Bermuda, a market trend has developed, particularly in respect of the Class of 2005 reinsurers, to establish insurance presence within Lloyd’s. Companies with previously established insurance and reinsurance units are looking further afield.

Number five of the Top Five issues is effective monitoring of aggregations of exposure. The issue dropped in importance among CEOs in 2008 compared to 2006, suggesting that companies feel that they have addressed many of the issues exposed by hurricanes Katrina, Rita and Wilma. Certainly, most companies consider that they improved their expertise in this area with better tools and the newer start-ups have been investing heavily in model science. The perceived improvements to these models can only be truly assessed in the event of a large catastrophe.

The survey highlighted other issues challenging CEOs in 2008, including effective investment management and performance, and capital management and allocation.

Caroline Foulger concluded: “Bermuda companies have an enviable reputation for adapting to change in uncertain times. But how they weather a sustained soft market in a time of world economic instability and slowdown will be interesting to see.”

Notes to Editor:

The Bermuda Market Survey 2008 is being launched on July 24, 2008 at the very successful, monthly Bermuda (Re)insurance Club, organised by PricewaterhouseCoopers. Running in conjunction with the London forum, the Bermuda (Re)insurance Club was created to provide opportunities for executives and management in the insurance and reinsurance industries to meet and discuss the key issues and trends that are driving and shaping the future of the industry, both from a financial and market perspective. A copy of the 2007/2008 calendar of events for the Bermuda (Re)insurance Club is attached to this release. The 2008/2009 calendar is in development.

A copy of The Bermuda Market Survey 2008 “Confronting the downcycle: Seeking opportunity in uncertain times” is attached to this release. For additional copies, please contact Louise Hayter on +1 441 299 7184 or download a copy from our website www.pwc.com/bm .

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