Share buybacks gather pace
Platinum Underwriters Holdings repurchased 2.2 million of its common shares for $91.8 million during the three months ended September 30, 2010.
The company then agreed to purchase, for $98.5 million in cash, options that it had issued to The Travelers Companies, Inc. in connection with Platinum’s initial public offering in 2002. The Travelers options had provided the right to purchase six million common shares from Platinum for $27 per share.
Platinum is the latest of the Bermuda companies to announce share buybacks or special dividends that will see more than $11 billion returned to shareholders in the 18 months ended December 31, 2010. This dramatic demonstration of first principles in capital management has reached across the Bermuda sector, with almost all of the majors returning capital to shareholders.
The primary driver is the lack of business available at acceptable rates as the soft market drags on. Logically, if you decline 10 percent of new business, for whatever reason, 10 percent of your capital pool would be excess to requirements. It is easier to raise new capital if excess capital has not been allowed to idle and drag down return ratios.
Concern has been raised that the companies will leave themselves under-capitalised, but in the past two years, the assumption has been that, should catastrophe ignite a hard market, capital would be attracted to opportunities to earn extraordinary returns.
