Reinsurance market's 'almost pirates' mark 10 years in hot-spot Bermuda.

Ten years after the strike of Hurricane Andrew precipitated the expansion of Bermuda's reinsurance market, the market's major players report they are still relatively unencumbered by significant exposures and once again are benefiting from the same conditions of a global capital crunch and flight to quality that helped spawn the market in the first place, according to participants in the 2003 Bermuda Angle Investment Conference.

"With the 10th anniversary of our initial meeting I've had occasion to reflect on just how much has changed in that relatively short period of time, and how Bermuda has effectively become, since then, one of--if not the--largest centers of capital in the world," said Michael Butt, chief executive officer of Axis Capital Ltd.

Among the changes reported by several participants in the conference, which gathered executives from 11 Bermuda reinsurers the week of Dec. 1 to provide guidance on their 2004 performance outlook, was progress in getting the market's major writers--including those who comprise the more recent "Class of 2001" that were created following the Sept. 11, 2001, terrorist attacks--recognized as long-term players, and not merely fly-by-night operations.

"Some of our broker friends have described reinsurers in Bermuda as the 'almost pirates of the almost Caribbean'," said James P. Bryce, president and chief executive officer of IPC Re Group. "I'd like to clarify that point. We're serious underwriters, and we're firmly located in the mid-Atlantic. I guess that 'firmly' part was seriously tested in September with the one-day visit of [Hurricane] Fabian, but we're still in Bermuda"

September's strike of Fabian--a Category 3 storm on the Saffir-Simpson Scale that caused more than $300 million in damage on Bermuda and proved to be the most powerful to hit the British island colony in 77 years--necessitated moving this year's gathering to December in Boca Raton, Fla., rather than its usual berth in Bermuda in early October, organizers said. Despite that setback, most participants reported exuberance, particularly in looking at a reinsurance market they expect to remain solidly profitable.

"It's a very good time to be an underwriter," said Evan Greenberg, chairman and chief operating officer of Ace Ltd. "It's true that property rates are flat to down, and casualty rates are slowing, but rates are technically adequate and in the main, the market remains fairly disciplined and we hope this will continue."

According to Greenberg, loss-reserve issues among the primary insurers, upward pressure on premiums caused by continued low interest rates, and a risk environment that remains unpredictable, particularly in casualty lines, should help continue to boost demand for adequate reinsurance.

Ace will look in 2004 to expand its writing of excess casualty, directors and officers, errors and omissions, medical malpractice and workers' compensation Greenberg said, as well as the personal accident markets in Latin America and Asia. Brian Duperreault, the company's chief executive officer, added that interprets the planned merger of Travelers Property Casualty Corp. and St. Paul Cos. as evidence of shrinking competition, not as a sign that the hard market in rates had come to an end.

"I don't think it either increase or decreases what we see in the specialty area," Duperreauh said. "There are very few players out there, very few in our areas of expertise, and now you just put two of them together."

According to Butt, there continue to be signs of "meaningful participants" exiting the reinsurance market, pointing in particular to recent actions by PMA Capital Corp., CNA Financial Corp. and Scot. "They are all creating an emphasis for the reallocation of share, and these market dislocations continue--so driven by recognition of capital impairment and ratings downgrades--these players are now anticipating downgrades and seeking to reallocate their business during renewal periods," Butt said.

"This is being driven by their capital constraints and their solvency issues," Butt added. "Also by their internal concentration, on trying to get back to what they're in business for--namely to write below 100% combined--and by some of their clients having real concerns about over-concentration of credit risk."

Michael Price, the chief underwriting officer for Platinum Underwriters Holdings Ltd., which was spun off a year ago from the former St. Paul Re, argued that these heightened concerns regarding counterparty credit risk have had just as significant an effect on the marketplace as the withdrawals.

"It means that even when a company would like to fully participate in the current market, it may only be able to do so on a restricted basis," Price said. "And contrary to some people's expectations, the new market entrants have not, in the aggregate driven pricing to unacceptably low level."

Furthering the concentration of reinsurance business, according to IPC Re's Bryce, is renewed concern about so-called "willingness to pay" issues with regard to reinsurance recoverables.

"Clients are becoming far more sensitive to the reinsurers they are doing business with," Bryce said. "Not only will companies have to recognize the legacy of the past for their own reserves, but they will also have to take more charges for buying reinsurance from lesser-quality reinsurer."