Bermuda bound: Bermuda is quickly becoming crowded with new insurers, which will need strong management, good underwriting and a little luck to reap long-term success. (Cover Story).Not since 1992--when Hurricane Andrew This article is about the 1992 hurricane; there was also a Tropical Storm Andrew during the 1986 Atlantic hurricane season. Hurricane Andrew is the second-most-destructive hurricane in U.S. history, and the last of three Category 5 hurricanes that made U.S. battered Florida--have so many insurers and reinsurers flocked to the island nation of Bermuda. Then, as now, the new insurers and their financial backers looked at a bad situation for the industry--record insured losses--and saw the potential for good--that is, profits. The second wave of new insurers and reinsurers hit the shores of Bermuda in the North Atlantic soon after the Sept. 11 terrorist attacks in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Within weeks after the attacks, insurance broker Marsh & McLennan and Bermuda-based Renaissance Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. each announced it would set up new reinsurers on the island in response to the industry's capacity shortage. MMC See MultiMediaCard and Microsoft Management Console. Capital, Marsh's private equity subsidiary, formed Axis Specialty. And Renaissance started DaVinci Reinsurance. Several other new companies were created in the ensuing en·sue intr.v. en·sued, en·su·ing, en·sues 1. To follow as a consequence or result. See Synonyms at follow. 2. To take place subsequently. months--Allied World Assurance, Endurance Specialty Insurance, Arch Reinsurance, Montpelier Reinsurance and Goshawk goshawk: see hawk. goshawk Any of the more powerful accipiters (hawks in the genus Accipiter), primarily short-winged, forest-dwelling bird catchers. Best known is the northern goshawk, which reaches about 2 ft (60 cm) in length with a 4.3-ft (1. Reinsurance. New insurers were still cropping up in Bermuda in late January--Olympus Reinsurance and Queens Island Reinsurance were the latest to set up shop. These new companies and their backers-equity firms, existing insurers and brokers--are trying to take advantage of a hardening hardening, in metallurgy, treatment of metals to increase their resistance to penetration. A metal is harder when it has small grains, which result when the metal is cooled rapidly. insurance market with rates that have risen 50% to 100% or more. "It comes down to rate--rate and term conditions," said Matthew Mosher A mosher is a person who is crossed between goth/punk/skater they have long hair and listen to music like slipknot and metal music. Some people call them headbangers. At certain music shows they have something called a mosh pit, basically its a fight pit with loads of people bashing each other. , group vice president in the property/casualty division of A.M. Best Co. "They feel there's a profit to be made." With nine new insurers moving to Bermuda, the market is becoming crowded with companies seeking riches in a post-Sept. 11 world. While established and start-up insurers and reinsurers say there is room for more competition, some analysts wonder how many will survive and for how long. A variety of factors may determine which of the new companies will reap long-term success, experts say. They include, but are not limited to, strong management, a clear exit strategy, alliances with other insurers, good underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. , ability to pay claims, ability to change with market conditions, timing and luck. "Clearly, you're going to have some winners come out as a result," said Robin Albanese, an equity analyst with Lehman Bros BROS Brothers BROS Benefits and Retirement Operations Section (King County, Washington) BROS Barnes and Richmond Operatic Society (London, UK) . "You're going to have some losers." Drawing Parallels For clues to what may happen in the property/casualty market in the coming years, one might look to Bermuda in the years following Hurricane Andrew At that time, several new Bermuda-based insurers opened for business to take advantage of that hardening market. Marsh was a player then, too. It led the formation of Mid Ocean, a property catastrophe reinsurer re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. . Renaissance Re was formed at this time, also, by insurer USF&G and equity firm Warburg, Pincus. Many in the industry see direct parallels between the property/casualty market after Hurricane Andrew and the market today, six months after Sept. 11. All estimates suggest the destruction of the World Trade Center in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of will be the largest insured event in history The most recent estimates range from $30 billion to $35 billion. Hurricane Andrew is now the second-most costly catastrophe, with losses of about $20 billion in adjusted 2000 dollars. Following the August 1992 storm, capital flowed into the Bermuda reinsurance market, just as it is doing today. "I think you can refer to what happened in the catastrophe market after Hurricane Andrew," Albanese said. "We've already been there, done that." Robert Steinhoff, presiding pre·side intr.v. pre·sid·ed, pre·sid·ing, pre·sides 1. To hold the position of authority; act as chairperson or president. 2. To possess or exercise authority or control. 3. chairman of Bermuda's Insurance Advisory Committee, said there was an immediate spike in prices after Hurricane Andrew because of a shortage in capacity. Prices rose significantly above pre-Andrew levels and would have risen higher if not for the large amount of capital that was invested in the industry in Bermuda, he said. Rates increased 20% to 70%, he said. "If that additional capacity had not come in, those would have been higher," he said. But James Stanard, chairman and chief executive officer of Renaissance Re and new reinsurer DaVinci, said the parallels between the post-Andrew and post-Sept. 11 periods are not so clear cut. "It's a different situation now than it was in 1993," he said. "You had just a withdrawal of capacity. You couldn't get things done at any price. Now, there is plentiful capacity. There is price discipline." But discipline is the one thing that was lacking in the years leading up to Sept. 11, 2001. Underwriting became a lost art in the soft market that dominated the late 1990s. The stock market surged in the last decade, and insurers relied on Wall Street investments to subsidize sub·si·dize tr.v. sub·si·dized, sub·si·diz·ing, sub·si·diz·es 1. To assist or support with a subsidy. 2. To secure the assistance of by granting a subsidy. years of underwriting losses. "We had reached a trough in the market," said Elizabeth Farrell, vice president of global financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. at A.M. Best. "They basically were giving insurance coverage away." Todd Bault, equity analyst with Sanford C. Bernstein & Co., said the popular view on the current market's price firming is that because there is so much capacity, it has to be deployed to increase rates. Bault, however, contends that pricing is counter-cyclical to profitability--as profits rise, prices drop; when profits fall, prices climb. "Underwriters don't think, 'I've got this capital to deploy,'" he said. With the economy in a recession now, profits are down, so prices are climbing, he said. Pricing discipline will be the trend in the industry for a long time, said Albert Benchimol, chief financial officer of Partner Reinsurance Co., one of the Bermuda reinsurers that was formed after Hurricane Andrew. "We have to make money the old-fashioned way, through underwriting," he said. PartnerRe is well positioned to take advantage of the current market, Benchimol said. The company has plenty of capital, a strong financial rating of A+ (Superior) from A.M. Best, and years of experience in the Bermuda market. In its latest round of renewals, it has taken on attractively priced risks that were unattractive just prior to Sept. 11, such as aviation and large industrial properties. Lessons Learned One thing insurers learned after Hurricane Andrew is that good underwriting is the key to profitability, although it's clear from the losses of the last few years that not everyone put this lesson into practice. "I guess the lesson that I hope we've learned is you've got to maintain your underwriting discipline," said Michael Morrison, CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Allied World Assurance. Another lesson, said Arch Reinsurance Chairman and CEO Paul Ingrey, is the importance of accurate catastrophe models. Everyone started building models after Andrew, he said. "There were models in place before Andrew. Andrew proved those were not good," he said. "Are they good now? They're good based on everything we know now." Benchimol said the quality of the management teams that led the post-Andrew insurers proved to be more important to their success than the amount of capital raised to back the new companies. Also important are professional relationships and a proven track record, he said. "Who's going to be on the other side of the phone when I call and have a claim?" he asked. Today, strong management remains one of the key ingredients for successful start-ups. Investors, equity analysts, ratings agencies and primary insurers all said quality of management is one of the most important factors for investing in, rating or doing business with the new reinsurers. Draining the Talent Pool Finding the talent to lead the nine new Bermuda insurers has not been easy. Some of the top executives were lured out of retirement by the challenge of running a start-up insurer in a hardening market. At least one cited loyalty to his former employer as a motivating factor. "When the chairman calls and asks you to do something, it's pretty difficult to say no," said Morrison, who retired in 1997 after 33 years with American International Group
American International Group, Inc. (AIG) (NYSE: AIG; TYO: 8685 ) is a major American insurance corporation based in New York City. , which is the lead investor in Morrison's Allied World Assurance. Ingrey of Arch Re had been retired for five years and was spending his days playing golf, tennis and bridge and guiding a 17-foot sailboat across the waters of Lake George Lake George, village (1990 est. pop. 1,100), seat of Warren co., E N.Y.; inc. 1903. Situated on the southern tip of Lake George in the foothills of the Adirondack Mts. in upstate New York Upstate New York is the region of New York State north of the core of the New York metropolitan area. It has a population of 7,121,911 out of New York State's total 18,976,457. Were it an independent state, it would be ranked 13th by population. . When he retired, he said, he "never looked back. I never wished I was working." Ingrey said he was drawn back into the business by the opportunity to create a successful company at a very good time for the insurance industry. Equity analysts and insurance executives have been saying for months that there is a lack of top-level talent. In a speech last year before the National Association of Independent Insurers, Alice Schroeder, an equity analyst with Morgan Stanley  To comply with Wikipedia's , the introduction of this article needs a complete rewrite. , said the shortage of
talent is the "single-biggest issue" facing the industry
today.The reason strong management is so highly regarded in the insurance industry is insurance companies are hard to analyze, Bault said. "Good management has to be much better than mediocre management," he said. Close alliances with other insurers also give new companies an edge over those not strongly allied. Most of the new Bermuda insurers have some relationship with an existing insurer or broker. Olympus Re, for example, has a quota-share agreement with member companies of White Mountains Insurance Group White Mountains Insurance Group is a holding company with business interests in property and casualty insurance, and reinsurance. The group owns the direct marketing insurer Esurance. External links
Too Much Capital? The loads of money coming into the industry--estimates extend higher than $9 billion so far--have raised concerns that the industry may become overcapitalized, which could keep rates from rising. Morrison of Allied World and Ingrey of Arch said there is no validity to claims that too much capital has been invested in the industry. They said the $10 billion or so added to the start-ups and existing companies make up just a fraction of the estimated $30 billion to 35 billion lost on Sept. 11. If overcapitalization Overcapitalization When a company has too much capital for the needs of its business. Notes: You might think that more capital is always better, but this isn't the case. is not an issue, these start-up insurers will still have plenty of challenges if they hope to succeed. And success can be measured in many ways, as the post-Andrew market has demonstrated. None of the companies that was started soon after Hurricane Andrew can be classified as a failure, but many are not around today While RenaissanceRe, PartnerRe and IPC (1) (InterProcess Communication) The exchange of data between one program and another either within the same computer or over a network. It implies a protocol that guarantees a response to a request. Re remain, Mid Ocean and Tempest Re were acquired by XL Capital and Ace, respectively. Benchimol of PartnerRe said that existing companies--such as PartnerRe--have the upper hand in the increasingly competitive Bermuda market. Factors that will lead to long-term success in this market include unquestioned ability to pay claims promptly when they come due; developing relationships with insurers based on trust; insuring the right product lines; and maintaining strong underwriting standards. "In this market, the established players will continue to succeed;' Benchimol said. "An insurance company will be much more prone to renew with a reinsurance company with which it already has a relationship." Many of the new companies are financed in part by noninsurance equity firms, which may be hoping to cash in on their investments in a year or two through an initial public stock offering or a merger. Other investors are taking a more long-term view. Here Today The big question, said Mosher of A.M. Best, is, "With the sheer number of new start-up companies start-up company A new business. , which ones will be autonomous in the long run, and which ones will be swallowed up by other companies?" John J. "Jack" Byrne, chairman of White Mountains Insurance Group, which launched Montpelier Reinsurance with Benfield Group Benfield Group Limited is a reinsurance and risk intermediary based in London, England. It has been listed on the London Stock Exchange since June 2003 and is a constituent of the FTSE 250 Index. , is noncommittal about the long-term prospects of the new company. "Montpelier is just an opportunity," he said. "We put $1 billion together very quickly, and we put together--I don't want to call it a temporary company, but an opportunistic company--just in Bermuda just for catastrophe reinsurance and mostly for business that otherwise would have been done at Lloyd's. Montpelier may only be around four or five years if the idea is not a good idea, but the idea is to write a lot of property catastrophe business that might otherwise have gone to Lloyd's." Allied World Assurance, on the other hand, expects to be a player in the industry for a long time. Morrison said the company's goal is "to grow and be profitable, to be here permanently." It's impossible to say with certainty what will become of the new insurers. "It's hard to speculate, but I don't think any of these companies are in the market for a finite period," said Steinhoff of the Insurance Advisory Committee. "The type of business these companies do will probably change as the market changes." Although it is not known which of the new companies will be around a year or two from now, most in the industry, and particularly in Bermuda, are confident that prices in the property/casualty market will continue to harden hard·en v. hard·ened, hard·en·ing, hard·ens v.tr. 1. To make hard or harder. 2. To enable to withstand physical or mental hardship. 3. for the rest of 2002, and perhaps beyond. "I do not believe the naysayers will be proven right that this will only last a year," Benchimol said.
Bermuda Insurance Premiums and Assets--1996-1999
As the Bermuda insurance industry grows, insurance assets and net
premiums written also are on the rise. Figures are for all classes of
insurers, reinsurers and captives.
($ Billions)
Net Premiums Total
Written Assets
1996 $19.8 $99.9
1997 20.4 111.8
1998 21.2 116.4
1999 23.6 131.6
Source: Bermuda Registrar of Companies
RELATED ARTICLE: Bermuda: Insurance Oasis in the Atlantic The islands of the Bermudas have attracted sea-faring explorers for centuries, tourists for decades and insurers for about 50 years. Nearly 1,600 insurers are domiciled dom·i·cile n. 1. A residence; a home. 2. One's legal residence. v. dom·i·ciled, dom·i·cil·ing, dom·i·ciles v.tr. 1. in Bermuda, a group of islands in the Atlantic Ocean This is a list of islands in the Atlantic Ocean.
Area, 52,586 sq mi (136,198 sq km). Pop. . More than 1,300 of those are captive insurance Captive insurance companies are limited purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups, they sometimes also insure risks of the parent company's customers. companies. In 1995, there were 1,401 insurers in Bermuda. The Bermuda insurance industry held $146 billion in total assets in 2000, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the Bermuda Registrar of Companies The introduction to this article provides insufficient context for those unfamiliar with the subject matter. Please help [ improve the introduction] to meet Wikipedia's layout standards. You can discuss the issue on the talk page. . What attracts new insurers to this small island nation--about 22 square miles--is a combination of low corporate taxes, a friendly regulatory environment, a wealth of industry talent and proximity to other insurers and reinsurers for on-the-spot dealmaking. Bermuda levies no taxes on income, withholding, capital gains, premiums or profits. The tax system is based on consumption--so insurers that move to Bermuda and set up offices and consume products and services are taxed on those purchases. The insurance industry is regulated by the Bermuda government, but the regulations make it relatively easy for international insurers and reinsurers to set up a business there. Bermuda is the world's largest captive domicile domicile (dŏm`əsīl'), one's legal residence. This may or may not be the place where one actually resides at any one time. The domicile is the permanent home to which one is presumed to have the intention of returning whenever the purpose . Because so many insurers--primarily international property/casualty reinsurers--are based in Bermuda, there is a high concentration of underwriting talent there. The New Bermudians Nine new insurance companies have been started in Bermuda since the terrorist attacks of Sept. 11, 2001, to take advantage of rising rates in the property/casualty market. Allied World Assurance Co. Ltd. Top Executive: Michael Morrison Investors: American International Group, Chubb Insurance Co., Goldman Sachs The Goldman Sachs Group, Inc., or simply Goldman Sachs (NYSE: GS) is one of the world's largest global investment banks. Goldman Sachs was founded in 1869, and is headquartered in the Lower Manhattan area of New York City at 85 Broad Street. Capitalization: $1.5 billion Lines of Business: Commercial property and casualty lines of business, including general and professional liability insurance, energy, transportation and commercial real estate property risks. A.M. Best Number: 84808 A.M. Best Rating: A+ (Superior) Arch Reinsurance Ltd. Top Executive: Paul Ingrey Investors: Warburg, Pincus and Hell-man & Friedman Capitalization: more than $1 billion Lines of Business: U.S. casualty treaty, U.S. and non-U.S. catastrophe treaty, property risk and proportional property risk. A.M. Best Number: 75169 A.M. Best Rating: A- (Excellent) Axis Specialty Ltd. Top Executive: John Charman John R Charman (born 1953), is an English businessman, who has made his career in insurance. He is currently CEO/President/Director at Bermuda based Axis Capital Holdings Ltd. Investors: Private-placement equity through Trident II, managed by MMC Capital, a Marsh & McLennan subsidiary. Capitalization: $1.7 billion Lines of Business: Short-tail primary and reinsurance lines of business. Primary lines include marine liabilities, marine hull, energy, political risk, aviation war and marine war. Reinsurance lines include property catastrophe, property, marine and aviation. A.M. Best Number: 84766 A.M. Best Rating: A- (Excellent) DaVinci Reinsurance Ltd. Top Executive: James N. Stanard Investors: Renaissance Reinsurance, State Farm Mutual Insurance Co., Max Re Capital Capitalization: $500 million Lines of Business: Property catastrophe. A.M. Best Number: 84749 A.M. Best Rating: A (Excellent) Endurance Specialty Insurance Ltd. Top Executive: Kenneth J. LeStrange Investors: Aon Corp., Zurich Financial Services Zurich Financial Services Group is a major financial services group based in Zurich, Switzerland. Global operations North America The US consumer market is served primarily by Farmers Insurance Group the third largest personal lines property & casualty insurance , Golden Gate Capital Capitalization: more than $1.2 billion Lines of Business: Property, casualty, catastrophe, excess workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. , aviation and space reinsurance, primary property, excess casualty and D&O insurance. A.M. Best Number: 84835 A.M. Best Rating: A- (Excellent) Goshawk Reinsurance Ltd. Top Executive: N/A Investors: Goshawk Insurance Holdings Capitalization: $140 million Lines of Business: Marine excess-of-loss, marine retrocession RETROCESSION, civil law. When the assignee of heritable rights conveys his rights back to the cedent, it is called a retrocession. Erskine, Prin. B. 3, t. 5, n. 1; Dict. do Jur. h.t. , nonmarine catastrophe, aviation excess-of-loss and finite reinsurance Finite Reinsurance A type of reinsurance that transfers over only a finite or limited amount of risk. Risk is reduced through accounting or financial methods, along with the actual transfer of economic risk. . A.M. Best Number: 84802 A.M. Best Rating: A- (Excellent) Montpelier Reinsurance Ltd. Top Executive: Anthony Taylor Anthony Paul Taylor (born November 30 1965, in Los Angeles, California), is an American former professional basketball player who was selected by the Atlanta Hawks in the 2nd round (44th overall) of the 1988 NBA Draft. Investors: White Mountains Insurance Group, Benfield Group, Gilbert Global Equity Partners Capitalization: $1 billion Lines of Business: Property catastrophe reinsurance, commercial property insurance and reinsurance and property retrocession reinsurance. A.M. Best Number: 84809 A.M. Best Rating: A- (Excellent) Olympus Reinsurance Ltd. Top Executive: Sheila Nicoll Investors: Leucadia National Leucadia National Corporation (traded on the New York Stock Exchange as LUK) is a holding company that, through its subsidiaries, engages in mining & drilling services, telecommunications, healthcare services, manufacturing, banking and lending, real estate, and winery businesses Corp., Gilbert Global Equity Partners and others through reinsurance intermediary Gill & Roeser Capitalization: $500 million Lines of Business: Property catastrophe and short-tail lines. A.M. Best Rating: Not Rated Note: All A.M. Best Co. ratings are as of Feb. 14, 2002. No information was available for Queens Island Reinsurance. |
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