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Endurance banks on Bermuda. (Special Report: Insurance Executive).

One of the bermuda newcomers, endurance specialty insurance, talks with risk & insurance about how it will compete in a marketplace that is quickly becoming crowded with those looking to take advantage of a tighter insurance market.

They come looking for, if not gold, then golden opportunities in the Bermudian insurance market. Nine new players have joined the ranks of other insurers looking to take advantage of higher prices. They bring with them about $16 billion of new investment capital, a good portion of the $25 billion capital that has flowed into the property and casually insurance and reinsurance market since the September 11 terrorist attack.

One of newer Bermuda companies is Endurance Specialty Insurance Ltd. Lead by Kenneth J. LeStrange, the company, up through April 1, 2002, has written just over $200 million in business in both the reinsurance and insurance lines. About 80 percent of the business is in reinsurance and 20 percent is in insurance products. On the insurance side, the company has written three principal products: individual property risk, excess liability, and health care. On the reinsurance side, the business is almost evenly split between property and casualty lines.

Executives from Endurance want the company to be a long-term player. LaStrange has been quoted as saying that the company will grow its business cautiously, employing technology and new risk analysis tools to better understand its exposures, including terrorism risk.

The company has excluded terrorism coverage from the business it writes, but is considering providing the product to its customers. "We want to be certain that we really understand what exposures we'd be taking on' says Steven W. Carlsen, chief underwriting officer of Endurance. "None of us knows with certainty what the next event or events will look like, and that uncertainty pushes us in the direction of looking for higher pricing than we would otherwise. But I think that many of the companies writing terrorism coverage now are pricing at a level that will turn out to be high."

What follows is an excerpt from a conversation Carlsen had with managing editor Denise Myshko.

Q: Since September 11, there have been nine new companies formed in Bermuda. Do you think there is room for all this competition?

A: There is. Clearly, we will see more consolidation in the industry as time goes by because of the new companies that have been formed and an ongoing trend toward consolidation in our business where there is a need for a broader and larger capital base from which to run the company. I think the new companies will play a role in that consolidation. But we're not seeing any evidence of too much capacity in the market.

A trend that has been going on for about 20 years is that reinsurance companies are headed in the direction of being larger and more sophisticated. The days where many small players could exist and simply participate are largely gone. There will continue to be niches where reinsurance will be transacted but they probably will not be the main insurance programs. There is a restructuring toward larger, better capitalized, more sophisticated risk takers.

We hope to be on the front edge of this shift. We have the advantage of starting with a very large capital base and a clean balance sheet and the ability to adopt from the newest and most effective tools that exist in risk management today and bring those together at the beginning of our company.

Q: How does Endurance plan to compete with the likes of Ace and XL?

A: You compete with established markets the way that you compete with other new markets--on an account-by-account basis. We're hiring an experienced staff of underwriters who also have experience establishing relationships with risk managers and reinsurance buyers. Ace and XL are wonderfully positioned as established companies with solid staffs. But they also have some of the challenges that come with being an established company, including ongoing exposures in ongoing books of business.

Q: How are you competing for that experienced talent?

A: Mostly through personal relationships. Both Ken LaStrange and myself have been in the insurance and reinsurance industry for well over 20 years. Along the way, we've worked with many skilled and effective underwriters. We've looked for underwriting skill, first and foremost. Secondly, we've looked for--and this is a softer issue--team chemistry. In the start ups, this is a very intense period of time. They need to work effectively together. That matters as much as the underwriting skill.

Q: How are you competing for customers?

A: Through a combination of risk analysis, analyzing accounts for their exposures, both by our underwriters and by our actuaries, and through personal relationships with the risk managers, with the brokers, with the ceding companies. We focus on getting the insurance and reinsurance "right," getting the coverage and terms and conditions structured correctly, getting the pricing structured correctly, and working on our relationships with our multiple clients.

Q: Does getting the insurance right lead to cherry picking? Do you think the Bermuda newcomers are picking the best risks?

A: I don't know if I would describe it that way. Certainly, for all of the new companies without a corporate history of relationships with clients, we need to rely more on our personal histories with clients. That has a tendency to steer the new players toward those companies that have the best data and that have the strongest and perhaps longest relationships with their reinsurers. The perception may be that the new companies are steering toward some of the highest quality insurers and reinsurers. But I don't think that is the driving force. The driving force is the availability of data and relationships.

Q: What are your customers experiencing in terms of renewals?

A: On the reinsurance side, the market has gradually stabilized. There was big upward shift in pricing and tightening of terms right at or near year end last year. January renewals saw major increases in pricing and reduction in terms. Now, the market is in a fairly stable position at levels that are fairly predictable for the buyers, particular those that have the assistance of brokers in the market.

On the insurance side, it's still more volatile. I would not say that the market has stabilized. In some classes of businesses, I think things are continuing to get tighter. Some segments like property insurance have begun to stabilize but at a level that feels like a huge adjustment for many of the buyers.

Another segment that is continuing to adjust is the umbrella market in the United States. It is continuing to get tighter. Some segments, in my own view, have not tightened enough yet. The D&O market, despite the direction it has gone in, has not sufficiently corrected for what we think is out there in terms of exposures. The liability market in general has a ways to go. I think the medical malpractice area also is going through an adjustment. I would guess that we have at least another year to go before things begin to stabilize in these areas.

RELATED ARTICLE: Company Snapshot

Name: Endurance Specialty Insurance Ltd.

Domicile: Hamilton, Bermuda (class 4 insurer)

CEO: Kenneth LeStrange

Employees: 20

Rating: A- (Excellent) from AM. Best

Began operation: Year end 2001

Investors: $1.2 billion from Aon Corp., Zurich Financial Services, Capital Z Financial Services, Thomas H. Lee Partners, Texas-Pacific Group, Perry Capital, GIC Special investments, General Motors Asset Management, Lightyear Capital, CSFB Merchant Banking, Golden Gate Capital, Reservoir Capital, TIAA-CREF

Products offered: Property insurance and per-risk reinsurance; property catastrophe reinsurance; excess workers' compensation reinsurance; excess general liability; directors' and officers' liability insurance and reinsurance; and space and aviation insurance and reinsurance.

Denise Myshko can be reached at
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Author:Myshko, Denise
Publication:Risk & Insurance
Date:Jun 1, 2002
Previous Article:July renewals: making the most of less reinsurance. (Special Report: Insurance Executive).
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