BERMUDA ANGLE.

Bermuda's Symbols of Growth

If the Bermuda insurance industry has a bellwether these days, it would have to be Ace Ltd. For better or worse, Ace symbolizes the fast growth and global ambition of the island's insurers, having acquired several major organizations over the years, and climaxing the century with its buy of Cigna's worldwide property and casualty business.

Indeed, by the end of the millennium, Ace's stock price had taken a hit and was only at about $17 per share, what with some heavy losses and uncertainty about its massive new world organization. And yet no insurance observers or insiders that we've spoken to are ready to bet against Ace CEO Brian Duperreault, whose strategic vision for Ace remains upbeat.

In fact, his talk at the recent PLUS (Professional Liability Underwriters Society) annual conference found him typically, dryly relaxed, as he acknowledged that "my own stock is down quite a bit," but went on to observe that "in the greatest bull market of our generation, property/casualty stocks are colossal underperformers. In fact, they are at the bottom of the entire financial services sector, which itself sells at a 50 percent discount to the S&P."

As for the burning issues, Duperreault observed that "the industry is still awash in capital...but you would be surprised how fast it can evaporate when there are underwriting losses and a falling stock and bond market. Once-in-a-hundred-year catastrophes seem to be happening every year. Satellites are heading off into the cosmos while planes seem to be falling from the sky with frightening regularity. Perhaps industry management still needs to feel more pain before they stop writing ... but I suspect most have had enough. The message is getting through and renewal prices have stopped declining."

As for globalization, Duperreault noted that there's "a vast difference between a local company doing business internationally and a global company operating locally.

"Every insurer with a representative office staffed locally by an expatriate likes to think of itself as a global enterprise. But that's just not the case. Insurers must have true local presence in every major world market to truly serve their clients global needs.

"For example, most telecommunication, energy, pharmaceutical, and consumer companies are truly global. They require insurance and risk management services in each of the major markets in which they operate. And of course they need an insurer with a landed presence in each of those jurisdictions. You know, in the past, each country had a few domestic leaders writing the bulk of that nation's reinsurance business. In short--a national oligopoly. Today, those regional oligopolies are being supplanted by a single global oligopoly consisting of a few multinational players who are truly insurers without borders. AIG is certainly a prime example, but there is also AXA, Zurich, and hopefully Ace."

As for financial services reform and the death of the Glass-Steagall Act, Duperreault was firm: "At first glance a merger between a bank and a P&C company would seem a natural. Banks are capital-constrained and are always searching for ways to increase their ROEs. The P&C industry is awash in redundant capital. A natural fit, yes? No. If I have to make a forecast I would say that the banks are not going to rush out and buy P&C companies. And ... the P&C companies don't have the price-to-earnings multiples to buy banks on anything but dilutive terms."

Duperreault's view of this Internet millennium for insurers? "To date I have not seen the 'killer application' for the P&C industry regarding the Internet. It certainly changes the way we process business and communicate. But it has not yet penetrated seriously into marketing despite numerous efforts in personal lines. One of our divisions is involved in Internet and data processing risk management and we provide covers for intrusions, lost data, business interruption hacking and liability. Not a major segment yet.

"But we are announcing a joint marketing initiative in Japan with Nifty-Serve, a Fujitsu subsidiary, which is that country's largest Internet service provider. Ace Products will be underwritten, processed and paid for entirely on the Web. In short, e-commerce will change the P&C world ... but not today."