ROUNDTABLE: REINSURANCE
Q3: WHAT IS THE SIGNIFICANCE OF THE STARTUPS THAT HAVE LAUNCHED ON BERMUDA?
“Our regulator is at the forefront of innovative regulation.”
Josephine Noddings
Noddings: Bermuda is at the forefront of insurance regulation globally. The regulations mean investors are very clear as to where their capital is going and how it is going to be treated. All the additional capital can only be a good thing for Bermuda.
It’ll help continue the investment, growth, and development of the markets in Bermuda. But it’s coming because of the quality of the regulation we have thanks to the Bermuda Monetary Authority (BMA).
Our regulator is at the forefront of innovative regulation. It’s developing on the technology front, while making sure it’s at the forefront of developments in the insurance industry.
Britten: The reasons that capital comes to Bermuda have been the same for many years. It was the same reasons after Hurricane Andrew or 9/11, and all those other challenging markets. The capital comes because of Bermuda’s respected legal system, regulatory environment, full-service infrastructure and the fact that buyers come to Bermuda to place their risks. All of those things are still very pertinent and genuinely good reasons capital comes to Bermuda.
There are a few differences this time around. One is talent; it seems many top executives were looking for new opportunities and waiting for the right time to come back into the marketplace. >>>
“Many other existing players have raised capital.”
Matt Britten
<<< From the perspective of attracting underwriting talent, new starts have a unique opportunity because they are unencumbered capital.
Some underwriters may have felt that they were constrained as part of larger groups, which may have looked to dampen down the volatility they’ve been taking on. Those underwriters see the new startups as places where they can get back to doing the business they want to.
So that’s important. In addition, the 2021 new starts have seen Convex and Fidelis raise and deploy their capital relatively quickly, both of whom recently have raised more.
But the startups are just part of the story. Many other existing players have raised capital; we’ve seen Lloyd’s carriers open up class fours in Bermuda, we’ve seen brokers open up a new office or acquire an existing one to expand into reinsurance, we’ve seen traditional players move their treaty business to Bermuda from Lloyd’s because of the changes in underwriting standards in Lloyd’s.
So there’s a lot of momentum in Bermuda outside of the startups. That’s extremely positive. That’s putting a real reaffirmation on the Bermuda market.
“We’re talking about both startups and scale-ups.”
John Huff
Huff: We use the terms “startups” and “scale-ups” and they all demonstrate the strength of the Bermuda market. The regulation is a big draw for investors because, in Bermuda, you know precisely where you’ll be in the process of forming a company, where you’ll be in line, what to expect, and, most crucially, who you’ll be dealing with.
A consolidated regulator is a market differentiator for Bermuda. As a result, having a startup in Bermuda is a huge plus. But, in reality, we’re talking about both startups and scale-ups. We have seen significant capital being raised by some of our existing legacy firms.
Champion: One must not underestimate Bermuda’s regulatory, advisory, and legal environment and how quickly that can facilitate a company from idea to execution. >>>
“You can’t overstate the impact of a clean balance sheet.”
Adam Champion
<<< You must not underestimate the impact of what Lloyd’s has been going through over the last five years on Bermuda. That is clear in the number of ongoing transactions, scale-ups, and the continuing shift of focus we have seen to Bermuda.
In addition, you can’t overstate the impact of a clean balance sheet. As a result we’re seeing a number of clean balance sheets launching in Bermuda, amid this very difficult period for Lloyd’s.
So this is an exciting time for Bermuda. While it is a challenging market for those who have been beaten up over the last four years, it’s a hard market only for those with a clean balance sheet. We are fortunate that there are a number of those in the market with very talented people who will try and execute them.
“It wouldn’t take much to change the picture quickly.”
Christian Dunleavy
Dunleavy: Convex has probably the best positioned as it had things in place before the pricing environment changed. Maybe it was fortuitous timing.
But in terms of all the startups, I haven’t seen anybody being irresponsible. In fact, there are many more regulatory and rating agency constraints on startups today. They will have to a watch their exposures because the regulators and the rating agencies would respond.
The discipline we are seeing is more driven by resolve and commitment to getting appropriate risk-adjusted pricing. And I’m not sure anybody wants to be the poster child for over-competing.
One of the reasons that this market has legs is that you see more reinsurers move to try to participate on a pro-rata basis because that’s where a lot of the original rate is and people are being sensible with how much limit they deploy.
Meanwhile, some of the measures Lloyd’s has taken have tied people’s hands. If they have bad impulses, they can’t really necessarily follow through on them.
As a result, everything is in place for a sustained period of rising rates. The rate of increase is slowing, for sure. And it’s pretty fragile. It wouldn’t take much to change the picture quickly. What we drive is discipline on our underwriting teams. >>>
“We have access to clients and markets that the startups do not.”
Paul Simons
<<< I would add that there’s also been a pretty big effort in the legacy market. Many existing players have essentially tried to create clean up their balance sheets, through adverse development covers.
They are trying to put themselves on an equal footing with some of the startups. Through adverse development covers you’re to clean up your balance sheet, and operate on a much more go-forward basis.
Simons: Everything is based on timing and the new companies are entering the market at the right time. It doesn’t mean they’re immune to all of the problems, particularly within a growing business.
Building a business is interesting; it will appeal to underwriters and others but established organisations will have much longer and deeper client connections in place.
That said, it is good for Bermuda and clients love options. Ultimately, it is good for business; it’s good for the market to have these new companies with unencumbered capital. We’ve taken the approach that we’re going to partner with some of these companies.
When you’ve been around and trading for a long time, your clients aren’t going to move business easily. There will be established connections there. They will need financial incentives to move.
We have access to clients and markets that the startups do not so we are open to partnering with them.
“We expect more and more MGAs coming to Bermuda.”
Adam Champion
Champion: I would add that some of the more interesting conversations we’ve had the last few months are on the run-off side. I think we’re going to continue to see that space grow explosively over the next few years.
The managing general agent (MGA) space is another area of opportunity due to a real dislocation in Lloyd’s binder business. We expect more and more MGAs coming to Bermuda and looking for capacity and partnerships. And we expect some of the bigger carriers to manage multiple MGAs, as part of a platform, to take advantage of the considerable infrastructure they have as a large company.
Huff: I agree that the run-off issue could be transformational for our market if we get the run-off space correct. The book has not been written yet, but there’s no better area that we need to be working collaboratively in cooperation with one another.
The US regulatory structure has not reached a landing on how run-off will work in the US. The UK is full of expense and is very cumbersome; this is an area that’s ripe for us to get right.
“They’re abandoning the more standard legal structures.”
Josephine Noddings
Noddings: The recent startups we have seen in Bermuda are using significantly different arrangements compared with what we’ve seen previously.
They’re abandoning the more standard legal structures they’ve historically used in favour of distinct capital arrangements and investment structures.
I believe it all contributes to keeping the market fresh and ensuring that we can offer products to investors that are current and up to date.
Image courtesy of Shutterstock / Niyash Nizar
