Acquisitions and capital infusions: Bermuda's (re)insurers are buying their way out of the soft market, as Roger Crombie explains.
At the sharp end of the Bermuda market, the two Brians - Duppereault and O'Hara - have been playing leap-frog in the past 12 months. Unable to grow organically in the longest soft market insurers can remember, ACE and XL Capital, the two largest Bermuda (re)insurers, have been outdoing each other in acquiring companies and broadening their market reach.
The two companies are changing the shape of the Bermuda market and, simultaneously, the Bermuda landscape. They have taken a long lease on the site of the former Bermudiana hotel and are building relatively enormous world headquarters within a stone's throw of each other. Less than half a mile to the west, Centre Solutions' newly constructed Bermuda headquarters dominates the entrance to Hamilton harbour.
For now, ACE is winning the race for size. Its acquisition of the property/ casualty operations of Cigna was completed early in July, vaulting ACE into the select group of the world's largest insurers, with an asset base of $30 billion and operations in almost 50 countries.
Within a month, XL Capital had announced its purchase of 49% of a new French reinsurance company, Le Mans Re. The new company will operate from headquarters in Le Mans, France, and has been capitalised at FrF 1 billion ($162.5 million). XL Capital has contributed cash of FrF 600 million ($97.5 million) to Le Mans Re for a 49% shareholding in the new company. XL's joint venture partner in the new company will be Les Mutuelles du Mans Assurances Group.A year of acquisition on this scale ought to be followed by a hiatus while the companies digest their new business. No one on the ground, however, expects a relaxation in the pace while the majors have cash in their war chests.
The following review of the year to 31 July 1999 shows that not all has been champagne and roses in the Bermuda market. New Cap reinsurance Corporation (Bermuda), a class four company, emerged as a casualty, while the continuing Bermuda Fire & Marine lawsuit has fixed the market's attention on Bermuda's insurance operations.
Aug 7: Travelers Property Casualty Corp. is to form Travelers (Bermuda) Ltd, a class three Bermuda insurer and reinsurer, with initial capital of $10 million. The company will be managed by Mutual Risk Captive Group Ltd, a subsidiary of Mutual Risk Management Ltd (MRM).
Sept 1: Partner Re buys the active reinsurance arm of Winterthur Insurance Co from Credit Suisse Group for $750 million in cash.
Sept 8: New York based American Capital Access Holdings Inc. (ACA), with outside investors, forms GCA Ltd, a Bermuda based reinsurer of low-rated municipal bonds and asset-backed securities, with an anticipated initial capital of $290.4 million.
Sept 10: An airline underwriting consortium is established in Bermuda by ACE Insurance Co Ltd; XL Insurance Co Ltd, and Overseas Partners Reinsurance Ltd (OPL). The new entity is providing catastrophe insurance cover for the airline industry, covering aviation, D&O, property and other related or associated exposures in a single policy form. ACE and XL will have 40% each of the capacity, with OPL holding the remaining 20%. The consortium will provide up to $250 million in aggregate limits for each airline on either an annual basis or longer.
Oct 5: XL enters into a joint venture with Financial Security Assurance Holdings Ltd (FSA) to create two new Bermuda based financial guaranty insurance companies. Each will have a minimum capitalisation of $100 million. Financial Security Assurance International Ltd will be an FSA subsidiary; XL Financial Assurance Ltd will be a subsidiary of XL Insurance.
Oct 29: Cathay Life Insurance Co, Taiwan's largest life insurance company, is to establish a subsidiary in Bermuda, using the island as a base for its international expansion and co-operation with foreign insurers for investment projects and penetration into East Asian markets.
Nov 5: MRM agrees to buy the International Advisory Services (IAS) group of companies. International Advisory Services Ltd, a subsidiary, has more than 100 captive clients with annual premiums in excess of $1.1 billion. The IAS Group will act as an autonomous unit within MRM under the direction of IAS founder and president, David Ezekiel.
Dec 2: Japanese trading house Sumitomo Corp intends to launch a joint venture rent-a-captive facility called Bluewell Reinsurance Co (Bermuda) Ltd, which is expected to generate about $10 million of annual premium volume within three years by offering rent-a-captive facilities to mid-sized companies and/or insurance agencies
Dec 11: IRMG, the risk and advisory captive management company, incorporates a Panama company, IRMG Panama, S.A. It has also entered into co-operation agreements in Brazil with Catalyst Re Consulting and in Mexico with Asescor Consultores.Dec 14: Exel changes its name to XL Capital Ltd.
Dec 21: Specialty reinsurer Stockton Reinsurance Ltd agrees in principle to pay £9.85 billion for Crowe Insurance Group Ltd, one of the largest remaining independent managing agencies at Lloyd's. Crowe, part of Ockham Holdings Ltd, manages six syndicates, with total 1999 premium income capacity of £230 million.
Dec 22: ACE Ltd is reported to be talking to CIGNA about buying its property/casualty insurance business.
Jan 6: RenaissanceRe Holdings and US based State Farm Ltd form Top Layer Reinsurance, a Bermuda based reinsurer with total capacity of up to $3 billion which will cover large property catastrophe risks with limits of up to $500 million.
Jan 7: Centre Solutions (Bermuda) Ltd issues $56.6 million in catastrophe bonds, a securitised deal to protect the company against hurricane losses in Florida.Jan 11: Bermuda registered Gemini Re Holdings Ltd files for a $400 million initial public offering. The company was to be formed by former Bermuda finance minister Grant Gibbons and former Centre Solutions president David Brown, but it founders within a few weeks and never gets off the ground.Jan 11: A Swiss Re survey reveals that Bermuda based reinsurers have taken a 5%, or $6 billion, share of the global market.
Jan 12: RenaissanceRe Holdings puts the business units of its US based subsidiary, Nobel Insurance Co up for sale, seven months after buying the company for $63 million. Renaissance takes a $40 million charge in the fourth quarter from Nobel's activities.
Jan 13: ACE Ltd agrees to pay $3.45 billion cash for the property and casualty businesses of CIGNA Corp. The purchase moves ACE into the top 20 players in the US property and casualty markets, with about 9,600 employees and operations in 47 countries.
Feb 5: MRM Hancock Ltd, the London subsidiary of MRM, becomes an accredited broker at Lloyd's, offering MRM and its clients access to the Lloyd's market. MRM Hancock is an international insurance and reinsurance broker specialising in the placement of reinsurance for captive insurance companies and other specialty programmes.
Feb 16: XL and Connecticut based reinsurer NAC Re Corp sign a definitive merger agreement in an all stock transaction. The combined organisation will have assets of $13.3 billion and shareholders' equity of $5.6 billion, based on 1998 figures. NAC Re is to become XL's platform for the United States.
Feb 26: Registrar of companies Kymn Astwood appoints John McKenna of Ernst & Young to inspect New Cap reinsurance Bermuda. After receiving Mr McKenna's report, Mr Astwood successfully petitions the Supreme Court of Bermuda for the appointment of a provisional liquidator. He states: “Loss reporting on retrocessions from its Australian subsidiary had accelerated in early 1999 beyond levels expected by the New Cap Bermuda actuaries and showed no signs of tapering off. These losses resulted in the insolvency of the company.”
Mar 1: MRM enters into an agreement to buy Captive Resources, Inc, a Schaumberg, Illinois, based provider of services to member owned group captive insurance companies. CRI has 50 employees and 1998 revenues of about $8 million.
Mar 5: New York investment bank Lehman Brothers establishes a four-man Bermuda office for Lehman Re, its Bermuda subsidiary. A further 31 staff are based at Lehman Advisors in New York. Lehman Risk Advisors is to deal with finite and political risk and the investment trading end of the insurance and reinsurance venture. Lehman Re is capitalised at $500 million, some 10% of the firm's capital equity.
April 15: The Hartford reveals “a new strategic thrust” for its Bermuda operations. It intends to provide clients with innovative financial mechanisms either on a direct basis, or through reinsurance. Such products will include wrap-around punitive damages, indemnification buy-outs and captive management and rent-a-captive services.
May 17: John Engeström, formerly ceo of Liberty Re in London, appointed president and ceo of Tempest Reinsurance Company, part of ACE.
May 20: The formation is announced of a new class four insurer, Intrepid Re, with an expected market capitalisation of $300 million. Intrepid Re and its parent, Intrepid Re Holdings, will be a joint venture between ACE, the British Royal & SunAlliance Group and Chicago based Aon. ACE and Royal & SunAlliance will underwrite Intrepid's book, with Aon providing sales and marketing expertise.
June 29: SCOR Group, France's largest reinsurer, acquires the 35% of Bermuda based Commercial Risk Partners (CRP) formerly held by Western General Insurance. The acquisition brings SCOR's ownership of CRP to 100%. CRP clients include corporations and insurers who seek alternatives to traditional insurance and reinsurance mechanisms.
July 7: US based PXRE Corp (PXRE) is to reorganise the company to create a new Bermuda based holding company, PXRE Group, with a Bermuda reinsurance subsidiary, to strengthen its competitive position within its reinsurance markets. Preliminary proxy materials related to the meeting are filed with the Securities and Exchange Commission (SEC) and the Connecticut Insurance Department exempts the merger from the state's insurance approval requirements. The establishment of a Bermuda presence, the board believes, may also help PXRE raise additional capital in the future from non-US investors and to write additional lines of reinsurance.
July 8: Bermuda based Stirling Cooke Brown Holdings (SCB) announces that Nicholas Mark Cooke is to stand down from his executive role as president and chief executive officer of the company. He will retain his position as non-executive chairman of the board and will continue to advise in the areas of client development and marketing. Len Quick, chief of the company's US operations, is appointed as chief operating officer and interim chief executive officer of the company.
July 8: RAM Reinsurance Co Ltd announces the completion of a second round of capital funding, totalling more than $57 million. The new round gives RAM Re approximately $133 million in shareholders' equity and $121 million in statutory capital. The second round of financing includes $30 million from Transatlantic Holdings, a new investor, through its subsidiary, Transatlantic Reinsurance, $15 million from the PMI Group, and $12.5 million from High Ridge Capital Partners, a private equity fund. Transatlantic now owns approximately 20% of the equity. The PMI Group and High Ridge Capital Partners increase their stakes in RAM Re to slightly less than 25% and 14% respectively.
July 13: XL Capital announces that Clive Tobin will succeed Robert Cooney as president and chief executive officer of XL Insurance Ltd (XLI), one of the group's principal insurance operating units. Mr Cooney had decided to leave the company to pursue other business interests. Mr Tobin was previously an executive vice president of XLI.
July 19: Jeremy Cox is appointed as Bermuda's registrar of companies, succeeding Kymn Astwood, who resigned earlier this year to take up a position in the insurance industry. Mr Cox has worked in the registrar's office since 1993 and has most recently been Bermuda's inspector of companies. His father, Eugene Cox, is Bermuda's minister of finance and his older sister, Paula Cox, is minister of labour and home affairs.
July 30: XL Capital and Les Mutuelles du Mans Assurances Group (MMA) sign a joint venture agreement to form a new French reinsurance company, Le Mans Re, subject to the satisfaction of certain conditions, including regulatory approvals. The new company will operate from headquarters in Le Mans, France, and has been capitalised at FrF 1 billion ($162.5 million). XL Capital is putting in cash of FrF 600 million ($97.5 million) to Le Mans Re for a 49% shareholding in the new company. MMA complements the 40-year-old operations of its reinsurance division, Mutuelles du Mans Réassurance, and holds a majority stake in Le Mans Re.
Roger Crombie is the Bermuda correspondent of Global Reinsurance, a regular contributor to local and international publications and the author of a history of the Bermuda law firm Conyers Dill & Pearman. He is also a fellow of the Institute of Chartered Accountants of England and Wales.