ROUNDTABLE: LEGACY RE/INSURANCE
HOW DISTINCTIVE ARE THE STRATEGIES OF LEGACY PLAYERS? WILL EACH PLAYER HAVE A DIFFERENT RISK APPETITE?
“You need to have ongoing dialogue.”
James Ferris
James Ferris: The legacy markets have different appetites and niches. It also depends what else they are heavily exposed to and what diversity they are seeking. This need can change as new capital comes into the business, what they want to write, the size of deals they have already taken on.
That’s why you need to have ongoing dialogue to make sure that the things you’re presenting are in keeping with where their business is going.
Brid Reynolds: I expect every company has a sweet spot, but that can flex depending on the deal. Compre is very open about our sweet spot—deals with up to $500 million loss reserves—but this doesn’t mean that we are closed off to other deals outside of this. It can depend on capacity, return and capital.
Someone alluded to capital benefits of new deals being a driver of appetite—certainly the more diversification you can extract from a deal, the better.
You need to look at your expertise and niches in particular lines of business but if a deal comes along with the option of transferring experienced employees, this is something that can be considered.
“If we take on the book can we properly add value?”
Michael Fontanetta
Michael Fontanetta: You need the capacity to manage the claims. That has a big bearing on deal appetite. You may want to keep the expertise of the people managing those claims when you acquire a book. There will always be considerations for synergies in the back office, but if there is specific expertise that you can utilise, that’s always something that you want to consider. Equally, you may have an in-house team who already know the book.
Deal size is another consideration. At R&Q we are seeing and executing a higher volume of larger deals than in the past and are enhancing our infrastructure to scale up with those large deals; additionally we have raised capital through our sidecar, Gibson Re. So, we have the platform and capital to service large transactions, but more fundamentally our approach to deals remains the same.
It’s always: Do we have expertise? Do we understand the liabilities? Can we manage those claims, and properly value the transaction? If we take on the book can we properly add value through our claims-handling?
Diversification is a key consideration. If it has a better diversifying effect on our book, then we can translate that into a better, more competitive price. So while you can have generic appetite, you still have to look at each deal as it comes.
“The efficient use of our capital is hugely important.”
John McGlynn
John McGlynn: We’re not constrained by size. Realistically, in recent years, we’ve been concentrating on larger deals but in our pipeline now we have an array of deals, from $100 million up to $2.5 billion. We have a global platform including Asia-Pacific, the UK, Europe, the US, and the main carrier here in Bermuda. So geography is fine as well.
Diversification is very important to us. The efficient use of our capital is hugely important. There are only very broad categories of reserve classes in Bermuda. That does not accurately reflect the underlying risks, we feel. Maybe an industry forum seeking a more a bespoke capital model would be helpful.
Diversification is hugely important in terms of our ability to price competitively and provide maximum return on equity benefit to the seller. But in terms of scale or sweet spot or region—we are flexible. We don’t like having too much live exposure, which sometimes comes with a deal, but that would be the same for every legacy player.
Fontanetta: When it’s not a legacy risk, it is more difficult to evaluate the liability. If you have a long history you can clearly see how a book has developed over time. With risks that are unexpired, that becomes very difficult.
“There is also the issue of how the BMA views the unexpired risks.”
Brid Reynolds
Reynolds: We currently have little appetite for unexpired risk. But as the others said, a small piece of live exposure will come along occasionally with a new deal which we may accept.
Fontanetta: It’s a negotiating point. We would never take unexpired risk by itself. If you’re wrapping it in and we need to make accommodations for the larger deal, we’ll reflect it in the price.
Reynolds: It’s interesting because there is also the issue of how the BMA views the unexpired risks. Do we have to put it through premium risk? Is there a premium provision to be considered? If we had a forum, we could all thrash these things out collectively.
Ferris: We have been talking about the part VII transfer type process and the BMA updating section 25 of the act. There’s definitely a willingness from the BMA to look at that. My take on what the BMA is saying is: “We like you as an industry, how can we make Bermuda a better place for the industry?”. That’s not making regulation easy or light, it’s making sure it’s appropriate to what these people are trying to achieve. In my opinion, there’s definitely a willingness there.
Image courtesy of Shutterstock / Vera Larina
