Q1: HOW HAS BERMUDA AND THE WIDER REINSURANCE INDUSTRY COPED WITH THE CHALLENGES OF COVID-19?
“We adapted. Business went on.”
Paul Simons: It has been very much business as usual, but also not business as usual. The industry and our colleagues have adapted to work from home really well. The technology worked, which is important because the business has to continue. I was so impressed with our people who took it in their stride.
We adapted. Business went on. We’ve been paying claims, we’ve been providing quotes, we’ve been servicing our clients—all of the things we normally do.
Some of it is even better because now when you are meeting virtually with a client or a broker you can include as many folks as you want, junior, senior, whatever. That’s a real positive, and we need to think about the future and how we work.
As an industry, we have worked together and continued for all our stakeholders. That has not stopped. We should be very proud of that as an industry.
Christian Dunleavy: Bermuda has coped very well. Bermuda is one of the only places in the world where you can conduct face-to-face business right now in the reinsurance industry so the Island has played to its strengths. We can control our border with a strong testing regime, and universal compliance with COVID-19 protocols means that we have the most normal reinsurance market anywhere.
Brokers are desperate to do face-to-face meetings, because I don’t think they enjoy negotiating remotely. There’s definitely pressure but negotiating remotely is clearly with us for now.
But the Island and the industry held up well. I saw a huge commitment to the communities, not just in Bermuda, but globally. Plus, we have been paying valid claims, of course, for an event that is a pretty much out of the box.
As an industry it has held up well and, as a jurisdiction, Bermuda is leading the way.
“What’s interesting is how resilient and flexible people are.”
Dan Malloy: What’s interesting is how resilient and flexible people are. We’re fortunate to have jobs and be working from home conducting business relatively normally. Bermuda is in an enviable position with its low rate of COVID-19. It is much tougher for people in other industries here: people must work face to face, and other countries are challenged with potential new shutdowns.
Bringing it back to business, we have 40 people and we’ve hired six since the pandemic started. That means about 15 percent of our staff never saw the office, and never met a colleague during the interviewing and onboarding process. It’s pretty astounding.
It will be interesting to see how things evolve. I’m part of a generation that learned by face-to-face mentoring, and interacting with peers. I worry how isolation is going to affect that process.
But maybe we’re the ones who are out of touch and this is a taste of the future. We may have to learn from the younger ones since remote working is a new reality for the near future.
We have had a busy time in other ways. We announced a merger with Sirius and we helped set up Arcadian Risk Capital. Both of these major projects were done without anybody being in the same room together. It’s amazing how we’ve adapted.
John Huff: First and foremost the return on investment for technology has paid tremendous dividends for companies.
The Bermuda Monetary Authority (BMA) has adapted really well, keeping pace with demand and its responsibilities. You don’t expect the regulator to have the technology that the companies would but they held their own.
Bermuda succeeded in containing the pandemic and we will come out stronger on the other side.
Accolades should go to the government and way they are handling the pandemic. COVID-19 is not going away quickly, so Bermuda is probably the safest place in the world for renewals.
“It is a real challenge—a social and an economic challenge.”
Anup Seth: The industry as a whole has coped very well with COVID-19, leveraging technology to trade as effectively as before. We are starting to notice a slight drop-off in productivity.
People are getting burned out with the number of Zoom calls and they’re missing that social interaction. But we have reopened the offices in Bermuda to 50 percent occupancy and I think that is making a difference.
We’ve also hired new colleagues during lockdown and it’s been very tough to onboard colleagues in a virtual environment. I think a hybrid model between office and home is going to be the norm for a while longer, but I certainly feel that from a Bermuda perspective, it is extremely safe.
The economic impact of this is immense. It is a real challenge—a social and an economic challenge.
For our industry, this experience will change us in other ways. Lloyd’s had a great trading platform online but there was less than 10 percent utilisation. Now, it’s in the high 90 percents in terms of utilisation. Necessity is the mother of invention.
They’ve obviously realised that we’re never going to go back to the old face-to-face trading floor when we’ve got such effective trading now online.
The trading floor will reopen but it will have a different function. The binding and quoting processes and the transactional piece will all be online, which is a good way of doing it.
“Today is the official first day of EY back in the office, so we’re excited.”
Bermuda can benefit from that sort of system. If we had an electronic trading platform for the Bermuda market, key discussions, key negotiations—it would be great. Nothing can beat that face-to-face discussion or negotiation, but it would be more efficient if we had technology backing the trading.
David Brown: Today is the official first day of EY back in the office, so we’re excited. A lot of credit should be given to the Bermuda government for taking steps to keep us all safe and allow business to return quickly. It’s business as usual to a certain degree in Bermuda, which is very positive.
The BMA has coped well. We’ve had a number of meetings with them. There are a lot of companies forming, new capital, transactions, etc, so they have been doing their part.
The remote working environment has justified the investments that companies have made in technology. The current environment has almost forced companies to advance their digital agenda, across the board.
Overall, the industry has handled it well and for Bermuda, there are some opportunities coming out of this. We’re seeing a lot of new companies forming.
One reason for that is the hardening rate environment but the wider point is that Bermuda is open for business and from a safety perspective, probably the best place to do business.
“Raising money does not seem as simple as it used to be.”
Brad Adderley: COVID-19 has made us more efficient. We submit everything electronically now to the BMA and that has made everything quicker and easier, which is a real positive.
This is a crazy season: we have the renewals, new capital , new sidecars, new insurance-linked securities (ILS) platforms, new startups. And we have COVID-19 and the hard market—it’s crazy.
There have been a lot of discussions about startups; it is interesting to see the amount of capital they’re raising, which is less than in previous years. The class of 2001 raised $1.2 billion to $1.8 billion; in 2005 it was about $1 billion.
Convex raised $1.8 billion in early 2019 but now most of the startups are raising $500 to $800 million and a lot of them are struggling to raise the capital despite its being a hard market. Most are raising significantly less than previous years.
So raising money does not seem as simple as it used to be, which is not what you would expect.
One reason might be that it can be hard to create a platform from scratch, therefore maybe they are better off buying another company.
“New capital is coming and more is being raised.”
Second, perhaps people don’t want to invest in a traditional reinsurance company.
Maybe they expect it now to be more innovative, or what had gone before is not acceptable to private equity (PE) firms.
The other thing is that, given the size of these companies, will they affect pricing at all? In the grand scheme of things, the startups probably will have very little effect on pricing. It will be interesting to see how many of these get off the ground by January 1.
Huff: In contrast, more established firms in Bermuda have done very well going to market to raise capital. Equally, there have been some startups, so new capital is coming and more is being raised.
Investors seem to be interested, which will impact rates as we move towards 1/1.
Adderley: I agree that existing carriers have been very successful. The reputation makes a difference and they’ve raised a lot of money. Equally, a lot has been raised on the life side, which will help Bermuda’s economy. In terms of startups on the P&C side, it will be interesting to see which companies succeed.
“In some instances the math just doesn’t work for investors.”
Malloy: From talking to people in the PE space, the uncertainty around COVID-19 is a factor. It’s not clear to investors what the opportunity will be, or what the quantum of the change is going to be.
So they question the return assumptions in an uncertain underwriting environment. That is different to post-2005 and post-2001 when it was pretty clear that the opportunity was real and there was something to take advantage of.
Looking at the other side of the balance sheet, interest rate assumptions are very low so in some instances the math just doesn’t work for investors.
In contrast, we just merged with Sirius and we have balance sheets, clients, people and ratings. That was a long process, even going for validation as opposed from a startup.
Investors are going for known commodities, people they made money from in the past, as opposed to evaluating someone remotely that they haven’t traded with before.
“Bermuda does seem to be a kind of magnet for a lot of the capital.”
Dunleavy: It’s been easier to raise money into existing franchises, which speaks to the value of what investors are seeing there, particularly as they are also buying into COVID-19 uncertainty.
As such, the startup environment is difficult. Also, experienced executives will not be available for January 1 or potentially even mid-year next year, so you’re missing an important window.
Maybe investors think the pricing environment might shift again.
For Bermuda, however, there will be opportunities post COVID-19. Money is flowing to Bermuda.
Whether it’s a startup or existing franchises or the life side, Bermuda does seem to be a kind of magnet for a lot of the capital, far more than anywhere else in the world.
Video on previous page courtesy of Adobe Stock / Timetofocus Image courtesy of Shutterstock / Vitalii Nesterchuk