Benfield sees earnings drop on forex and soft market

By Andras Gergely

LONDON (Reuters) - Reinsurance broker Benfield BFD.L said on Friday it expected its 2008 trading result to be marginally below 2007 as it faced adverse foreign exchange trends and a softening reinsurance market.

Benfield, whose specialty areas range from earthquake to kidnap and ransom cover, said it had seen little change to the conditions described in March when it posted a 7.5 percent fall in 2007 earnings due to the weak dollar and a tough market.

"In the broader reinsurance market the declining trend in pricing has also continued, reflecting an abundance of reinsurance capital, the absence of recent major catastrophe losses in most territories and increasing competition among reinsurers," it said.

It added however: "Benfield has not been materially affected by the global credit crisis, and although it has had an adverse effect on some reinsurers, the overall impact on the global reinsurance market has been muted."

Benfield also saw a likely improvement in the trading environment in the important Florida catastrophe reinsurance market from proposed revisions to the legislation on the Florida Hurricane Catastrophe Fund, it said.

Brokerage Panmure Gordon, which maintained its "sell" recommendation for the stock, said the good news from Florida explained the recent rally in the stock, which has erased losses of up to 15 percent after March's earnings statement.

"Our sell recommendation reflects short term pressures facing Benfield and longer term structural changes to the reinsurance industry, as capital markets squeeze traditional reinsurance broking margins," Panmure analyst Barrie Cornes said in a research note.

Shares in Benfield traded 0.1 percent higher by 9:11 a.m. at 264-1/2 pence.