Sarah Goddard is editor of Global Reinsurance.
It's been a year of change for Bermuda since Global Reinsurance last featured the PricewaterhouseCoopers' Bermuda market review. At the time, PwC commented: “There is no doubt that the world's property/casualty markets have been an increasingly tough place to do business over the last twelve to 18 months. Wafer-thin or negative margins, a surplus of available capital, the sometimes frantic push for premium growth and the polarisation of the stock market performance of old economy and new economy companies have meant that p/c companies have struggled to maintain profits and provide realistic returns to shareholders.” In a global market where “it is not unusual nowadays to find insurers' stocks trading at a significant discount to book value,” Bermuda-based re/insurers had “not been immune to these developments.”
One year on, and the environment is very different. PwC reports most listed re/insurers trading at around 200% of book value, with improved pricing conditions and a “thankful” absence of large catastrophic events. Bermuda's market has followed these trends and more of its own including the “ability to attract new companies,” development of new products and lines, growth in its existing specialist (particularly finite risk), evolving new structures such as risk securitisation, and spreading its overseas stretch even further.
Bermudian market practitioners seem to concur with this bullish view of the jurisdiction. One of last year's newcomers to the market, Tokio Millennium Re, has increased its capital to $250m “to take advantage of further market opportunities”, and the life reinsurance sector has is beginning to see a significant increase in the number of players. Since Max Re's well-heralded establishment at the beginning of 2000, Imagine Re and Hampton Re have set up on the island, and recently redomiciled Everest Re bought annuity and life reinsurer AFC Re. Not to be left behind the pack, ACE subsidiary Tempest Re set up a new life reinsurer, ACE Tempest Life Re, and Scottish Annuity & Life Holdings announced its intention to redomicile to Bermuda.
Other specialist sectors are showing signs of increased pace of business. Sovereign Risk, the political risk joint venture between ACE and XL set up four years ago, has announced three major transactions since the beginning of this year; two capital markets transactions in Argentina, and a reinsurance contract with Brazil's Inter-American Development Bank. Weather-related business is also on the rise, with Commercial Risk proving one of the most active secondary market traders in the sector on the island.
Renaissance Re, that powerhouse of outstanding results, failed to disappoint with its 2000 figures, which showed a 21% return on equity for the year. Chairman, president and CEO Jim Stanard puts Renaissance Re's consistently superlative returns down to very detailed modelling and a strong underwriting team. In 1999, Renaissance Re entered into two joint ventures, Top Layer Re with Illinois-based State Farm Mutual Automobile Insurance Co, and OPCat with fellow Bermudian Overseas Partners (OPL). The past year may prove to be the turning point for OPL; with a new CEO in Mary Hennessy, a new company direction and a strong finite risk team secured from Stockton Re, it is in the process of being turned into a large specialist reinsurer. As part of its realignment, it will soon be establishing a presence in Dublin – an increasingly regular pattern for Bermudian re/insurers looking for a European presence.
As well as looking internationally for business, Bermuda operations are also looking at new ways of transacting established lines. Finite risk is being extended to new areas, and re/insurers are increasingly assessing to the impact alternative asset management strategies can make to their business models. In this issue, Barbara Tannock of the Bank of Bermuda outlines the various methods available, and weighed up their pros and cons for re/insurers. E-commerce is the third branch of the self-conferred ‘convergence island' title Bermuda has assumed. Ross Webber of the Bermuda International Business Association explains the technology infrastructure already in place on the island, while QuoVadis' Stephen Davidson explains the latest e-security process now available on the island.
It is not all sweetness and light, however. The US insurance community is refusing to step down in its cries of “foul” over the taxation of offshore insurers – the “Bermuda loophole,” as they describe it. Roger Crombie explains the Congressional moves so far, and assesses how far they are likely to get – or not, as the case may be.
In addition, Bermuda's government has recently had a clamp-down on the number of work permits for expatriates. Although there are some worries that this will limit access for professionals onto the island, the Bermuda Foundation for Insurance Studies is mitigating this risk with its programmes to encourage insurance education for Bermudians. Cathy Lapsley explains the mentoring programme which has matched more than 80 students with finance professionals.
All in all, the signs are that Bermuda is a treasure island indeed.