Annual round up
Max Re in collaboration with Bayerische Hypo Vereinsbank sets up Grand Central Re, a class 4 Bermuda insurance company with initial shareholder equity of $200m. The Bermuda reinsurer takes a 7.5% stake in Grand Central Re and invests $15m in the venture, while Bayerische Hypo Vereinsbank invests $185m, taking a 92.5% stake.
XL Capital subsidiary Element Re completes its first international deal. The weather risk management provider strikes a deal, the first of its kind, with German utility Elektrizitätswerk Dahlenburg, to protect business revenues against rainfall. Under the terms of the deal, Element Re would provide financial protection to the utility against excessive rainfall in the summer months.
Element Re hits the headlines again as it completes a deal with Atmos Energy Corp - the deal is one of the largest weather-related end-user coverages to date. Under the deal, Element Re would protect the Dallas-based gas distributor against revenue loss during warmer than expected winters. The policy covers a range of key city sites across the US. Uniquely, the deal allows Atmos Energy to drop the last year of coverage on predefined terms. The aggregate limit for the deal is set at $60m.
In a bid to boost its existing re/insurance products The Imagine Group through Bermuda-domiciled Imagine Insurance Co Ltd agrees to acquire Enterprise Re. XL Capital completes its acquisition of Winterthur International from Winterthur Swiss Insurance company for an estimated $405m, increasing the insurer's global presence.
RenaissanceRe reports an increase of 13% in second quarter income to $37.5m from $33.3m in the same reporting period in 2000, despite "a relatively high level of industry catastrophe losses". The results help to take operating income for the first half of the year to $74.7m, an increase of $10.5m from $64.2m for the first half of 2000.
Meanwhile, ACE reports an income of $115.4m for the second quarter down from $140.1m for the same period in 2000. ACE chairman and CEO Brian Duperreault describes the quarter as "really very good held back only by an unusual number of catastrophes" which hit a number of areas where the firm has relatively high market participation.
XL Capital is hit by income losses for the second quarter of 2001. Income for the quarter falls to $128.6m from $142.5m in the same reporting period in 2000, reducing income for the first six months ended 30 June by $18.7m to $347.5m. Similarly to ACE, XL Capital is hit by high-level loss activity.
Events of September 11 dominate the headlines. In the weeks that follow, re/insurers the world over try to come to terms with the tragedy, while attempting to quantify the loss to the industry and the global economy. In just three days, PartnerRe reports that it expects damage claims of between $350m and $400m. The majority of claims are forecast to come from property, casualty and aviation lines written in Bermuda, Europe and the US. ACE predicts damage claims of around $400m.
MMC Capital, the private equity arm of Marsh & McLennan forms a new re/insurance concern, Axis Specialty, in response to the capacity shortage in the wake of September 11. Axis Specialty is expected to capitalise at around $1bn and begin underwriting in the fourth quarter of 2001. Trident II signs up as lead investor.
Arch Capital Group enters into an agreement to acquire Rock River Insurance Co, an excess and surplus lines insurer with a presence in 45 US states, the District of Columbia and an admitted insurer in two other states. Existing policies and other liabilities of Rock River are reinsured or otherwise assumed by the seller, Sentry Insurance, a mutual company.
RenaissanceRe reveals plans to form a new property/catastrophe reinsurer, DaVinci Reinsurance. The new reinsurer initially capitalises at $500m. DaVinci offers side-by-side participation with RenaissanceRe similar to the company's continuing arrangement with OPCat.
Trenwick Group, XL Capital and IPC continue to revise exposure estimates for September 11 damage claims.
Arch Capital Group creates a multiline reinsurer with the help of two private equity investors, Warburg Pincus and Hellman & Friedman, which invest $500m and $250m, respectively. The newco, Arch Re, capitalises at $1bn.
In response to the increasingly favourable underwriting and pricing environment in the reinsurance market, White Mountains Insurance Group announces plans to establish a new Bermuda-based property/casualty reinsurer. White Mountains intends to concentrate initially on the property reinsurance business through the broker market. The company invests $200m into the new venture which is expected to capitalise at $1bn.
Sovereign Risk Insurance and XL Capital agree a deal, believed to be the first involving both a monoline insurer and a political risk insurer, to provide commercial and political risk protection to the Swedish government export credit guarantee agency, Exportkreditämnden (EKN). XL Capital provides a $231m reinsurance policy to protect against losses resulting from a default by a Mexican utility on loan payments insured by EKN. Sovereign provides the political risk coverage to support the deal.
RenaissanceRe and PartnerRe announce that limited terrorism coverage will be offered to customers. However, exactly how limited the coverage would be remains unknown as year-end renewal negotiations continue. RenaissanceRe says it is generally looking to exclude terrorism cover from its commercial insurance and reinsurance policies but would offer some coverage at "the right price" and terms. ACE also says that terrorism coverage will be offered to policyholders on a limited basis, but shies away from extending such coverage.
Three new reinsurers open for business on Bermuda. Endurance Specialty, Allied World Assurance Co and Montpelier Re. Endurance Specialty, led by Kenneth LeStrange, is set up to provide capacity and support to the property/casualty insurance market. Endurance Specialty has a mutiline business plan, with both insurance and reinsurance products. Allied World Assurance Co, formed in November 2001, also opens its doors for business. The property/casualty company backed by AIG, Chubb, Swiss Re and investment bank Goldman Sachs capitalises at $1bn.
White Mountains and the Benfield Group set up Montpelier Re, another property/casualty firm. White Mountains invests $250m in the venture and the Benfield Group invests $25m. Privately placed equity to the value of $850m is invested, along with $150m of bank debt. Montpelier Re's target lines include: property/catastrophe excess of loss reinsurance; property risk excess of loss reinsurance; facultative reinsurance; and property retrocession.
XL Winterthur International, the risk management business of XL Capital, establishes a new excess casualty unit based in New York. The new umbrella is set to offer lead umbrella capacity up to $25m, excess minimum attachment points of $1m using umbrella occurrence and claims made coverage forms. Excess liability following form coverage would also be offered, subject to a maximum capacity of $50m per account. Max Re buys $50m of DaVinci Re Holdings and DaVinci Reinsurance shares, the property/catastrophe reinsurer setup by RenaissanceRe in October 2001. Max Re joins RenaissanceRe, State Farm Mutual Automobile Insurance Company and other DaVinci Re investors.
Overseas Partners Ltd stops underwriting new business and puts its Bermuda operations - OP Re, OPAL and OP Finite - into run-off. OPCat policies are taken over by RenaissanceRe and the OPL board begins discussions about selling OPUS Re, its US reinsurance operation, and moving the Bermuda finite and accident and health underwriting teams to other organisations. OPL has approximately $1.3bn in capital. The decision to cease operations follows an independent review by two actuarial/consulting firms. OPL's decision flies in the face of the current trend of increasing underwriting commitments in the hard market.
GoshawK Re, a new Bermuda reinsurer launched by GoshawK Insurance Holdings, opens for business. The class four company plans to write marine, non- marine property/casualty, marine retrocession, aviation and finite reinsurance. Olympus Re and Queens Island, two new reinsurers set-up in December 2001, also open for business. Olympus Re, established with $500m in capital plans to write property catastrophe and short-tail lines. Financial backers of the new entity are Leucadia National Corp and Gilbert Global Equity Partners.
HSBC Insurance Brokers launches a new company - HSBC Insurance Solutions (Bermuda) Limited, based in the Continental Building, 25 Church Street, Hamilton. The company plans to operate in three specific areas: traditional insurance broking; captive management; and obtaining insurance for capital market transactions.
Mutual Risk Management (MRM) signs an agreement for the sale of its fund administration business, Hemisphere Management. It expects to receive about $110m for Hemisphere. Proceeds from the sale are earmarked for debt repayments to banks and debenture holders. By the end of the month MRM has placed two of its US insurance companies, Legion Insurance and Villanova Insurance, into voluntary rehabilitation as a result of an order issued by the Commonwealth Court of Pennsylvania.
XL Capital invests $72.8m in Primus Guaranty, a newly formed company specialising in credit risk protection for individual corporations, sovereigns and financial institutions. XL takes a 43% stake in Primus. The company's decision to invest in Primus comes in the wake of years of exponential growth in the credit risk protection market.
A group of re/insurers led by XL Capital establishes a new company to provide terrorism cover for property. The Bermuda-based insurer is joined by Zurich Financial Services, Swiss Re, SCOR, Hannover Re, and Allianz to form Special Risk Insurance and Reinsurance Luxembourg (SRIR), which would provide limited coverage for physical loss or damage to insured properties. SRIR has total capital of E500m. All participating companies hold an 18.2% stake in the concern with the exception of SCOR, which holds 9.1%. The company is established to address the shortage of terrorism capacity in the commercial market following the collapse of the World Trade Center. Policies on offer are expected only to cover damage to property resulting directly from an act of terrorism and will be focused on Europe. Business interruption and liability will not be insured.
MRM woes continue as company president John Kessock resigns after 23 years with the firm. Reinsurance recoverables still plague the company. Legion Companies operate in run-off under the control of the Insurance Commissioner of the Commonwealth of Pennsylvania as of 1 April. No new policies are bound and Legion Companies begin a process to non-renew in-force policies in accordance with state regulations.