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Potential benefits of reinsurer consolidation depend on quality of due diligence work.

June 21, 2007

Analysis of:S&P Examines Reinsurance M&A | www.insurancejournal.com

If thorough due diligence work is performed, investors could benefit from consolidation due to the benefits of diversification. A combination of companies focusing on different lines would either free up capital for other purposes or lead to a financially stronger company due to the benefits of diversification. However, this works only if legacy issues have been dealt with and both players really have core competencies to contribute to the combined enterprise. However, mergers or acquisitions implemented without adequate due diligence efforts could lead to reductions in ratings, which has happened in a substantial portion of combinations implemented in the past.

New Florida Laws Reduce Risk Adjusted Returns of Bermuda Reinsurers

June 14, 2007

Analysis of:GR Survey: Florida’s impact on Bermuda | www.globalreinsurance.com

Now that Florida is retaining a much larger portion of their more predictable catastrophe losses, insurers and reinsurers should be able to buy the high layer coverage they want at affordable prices. The risk load charged for this high layer coverage would be significantly less than the risk load included in last years quotes for such coverage. I would expect a moderate decline in premium due to normal competitive pressures after a great year, but higher expected combined ratios and lower expected returns on equity. I would also expect less use of sidecars as investors search for opportunities that offer better risk adjusted returns. All else being equal, I would expect stock prices of Bermuda reinsurers to be under pressure as hedge funds reduce their positions. Finally, I would expect diversification efforts of Bermuda reinsurers to intensify, primarily due to rating agency pressure.

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