New capital
Startups and Bermuda: a perfect pairing
Startups on Bermuda are an ongoing theme. Bermuda:Re+ILS explores the attractions of the Island and what the future holds.
“When people want to innovate, then literally within a square mile you can find a large number of like-minded people.”
Alan Waring, Amwins Bermuda
Not so long ago, one might have said Bermuda was the focus for a flurry of startup activity. Now, startups are an ongoing theme, fed by the Island’s unique assets—including a dynamic, supportive regulatory environment and the concentration of world-class expertise on Bermuda.
“Bermuda has reached a phase where it doesn’t go through periods of startups; there are now new companies starting up in Bermuda all the time,” says Amwins Bermuda director Alan Waring.
If we look back to the capacity crunches of the 1980s and 1990s, and to the 2001 World Trade Center attacks, people would say Bermuda responded to a crisis—when there’s a lack of capacity in the market—with an increase in startups. But since Hurricane Katrina and the mid-2000s, when a range of startups happened, it’s been a continually evolving marketplace.
“Across all lines of business, including long tail, you have people coming constantly to innovate, to utilise capital, and Bermuda has become a place where you can come to meet like-minded people to identify the best places to utilise that capital and how to deploy it in the current market,” he explains.
In this constantly evolving market there are entrants on the life and annuity side, the long tail side, the insurance-linked securities (ILS) and the alternative capital side—and it’s no longer a response to any single event but, in Waring’s view, a sign that the market recognises the challenges in identifying causes and predictability of losses, and responds by bringing in more capital, deploying it, and finding out how to structure it to create some certainty amid uncertainty.
In terms of the amount of new capital coming into the market, John Huff, president and chief executive officer of the Association of Bermuda Insurers & Reinsurers (ABIR), says that Bermuda has attracted billions of dollars in new investment during the past 18 months, with a large number of startups plus more capital injections from existing players coming to the Island.
“We’ve seen some significant investment in Bermuda over the last year-and-a-half, with about $19 billion of new funds coming into the sector from startups and ‘scale-ups’,” Huff says. “We’re seeing significant growth from our legacy firms that have been re-energised, with additional new capital being deployed.”
Why Bermuda?
Why is Bermuda so attractive for startups? “Some startup companies have chosen Bermuda for the usual historical reasons: it is a great place to start a new company, with a very responsive regulator, plus laws and language that conform to the English system,” says Huff. “And of course, there’s the world-class talent—the most concentrated talent for re/insurance in about a 14-block space.”
Waring echoes these comments, adding that over the last four decades, the Island has reached a point where it is seen as an innovator in managing risk and utilising risk capital—and therefore, if you want to start a company in a hub of innovation, Bermuda is the place to come.
“With all that London and Lloyd’s have been through they have had to impose a regulatory regime that has somewhat stifled the ability to utilise capital quickly and innovatively,” he says.
“Bermuda has successfully become a place where, when people want to innovate, then literally within a square mile you can find a large number of like-minded people and set up meetings to analyse where the opportunities might be. You can do that in two or three days here in Bermuda and get a real sense for the state of the market.
“We have people constantly coming in now, trying to understand what the brains trust of the industry is thinking.”
“There’s certainly adequate capital, and it’s a very opportune time to deploy it.” John Huff, ABIR
How are startups faring?
“The most successful startups are those who take a cautious approach,” says Waring. He sees this as the differentiator compared to how startups came to Bermuda in the past.
“If you look at past startups that came in post 9/11 or Hurricane Andrew, there was an obvious place for them to go,” he says. “There was a significant shortfall of capacity because there’d been a major event, and they came in and they filled holes—with 9/11 being the most extreme example, when the volume of capacity, the volume of premium that came into Bermuda in 2002–2004, was extraordinary, because there were big gaps in the market.”
Waring believes that because of the way the marketplace is now, and because of lessons learned in the past, startups are taking a different approach compared to when they came in after Katrina, for example, and filled the gaps.
“In the current market it’s not that there’s been a major event and there are big gaps in the market—but there is an increasing level of uncertainty about what’s going to happen next, and unusual events are happening continually,” he explains.
“New events that weren’t even envisaged are happening, so risk-takers are now taking a more cautious and staged approach to building their books of business, a lot of it starting off with their historic relationships.”
Waring notes that the people who are coming in and starting up companies on Bermuda are people who have seen it all before and are already well known in the re/insurance community.
“Take someone such as Trevor Carvey at Conduit—he was here with Arch as a startup, he is well used to how to do it; or Greg Hendrick at Vantage,” he says.
“He’s seen the good, the bad and the ugly that happens within a startup—and they are taking a pragmatic, cautious approach, relying initially on the core trusted relationships they’ve had over the years, and then with a very measured approach, looking at opportunities, gaps, problems in the marketplace, and seeing if there’s realistic opportunity for them.”
A startup’s view
“Gleaned from the publicly available information, it seems the class of 2020 have had a ‘to be expected’ start with their 2021 performance,” says Tim Shreeve, head of platform development at Ariel Re.
“2021 was another attritional type year in terms of losses and earnings lag was present, so they aren’t running at their target efficiency and that will take time. From Ariel Re’s standpoint, we also consider ourselves to be a class of 2020 start up, but with a twist on the other Bermuda models,” he explains.
“We raised our 2021 capital and deployed it in London, while being a Bermuda-centric underwriting operation.
“From a local standpoint, we were pleased to see that Bermuda was the first-choice destination for many of the new entrants, validating the entrepreneurial spirit and commercial regulatory environment that the Island offers,” he adds.
“At the same time however, we are very much a Lloyd’s business, and believe in that business model despite the pressure that reinsurance at Lloyd’s has recently come under.
“We are investing in London, building out a managing agency to run our syndicate so we are committed to running our London business while accessing the risk that we like locally in Bermuda. We think that the future holds a continued focus on many emerging risks and an investor community that needs to see returns commensurate with the risk they are assuming, irrespective of the jurisdiction they choose to deploy their capital in.”
“We think that the future holds a continued focus on many emerging risks.” Tim Shreeve, Ariel Re
The importance of relationships
While each startup has its own nuance in terms of what it’s focusing on, Waring says the main trend is looking to trusted long-term relationships, and building a book of business based on those trusted trading relationships.
“The underwriters who have been in the market many years know where they’ve made profit before and they know who to support,” he says.
“In the ILS retro market, some of those that have played in it have not come back to reload, and some are being more cautious. Some have decided they don’t want the unpredictability of some of the outcomes, and the pool of participants in terms of capital coming into the market is a bit more tentative.
“The retro market has tightened up, which means that reinsurers don’t have as many places to lay off the same levels of risk that they did in the past—so they’re not necessarily putting up rates at an accelerating level, but they are somewhat pulling back.
“We’re seeing markets pulling back the amount of capacity they’ll put out on any one risk and maybe a smaller amount of participation over a large number of risks, which therefore means the gaps have opened up for the new participants to come in. And hence, the importance of the continuity of the relationships they’ve had.
“People and their relationships are what make deals happen and make business flow. When it comes to those who come into the market and don’t have the relationships, the market knows that they’re the ones that will suffer or have the risk of suffering adverse outcomes.”
The impact of startups
At a time when many reinsurers are drawing a line in the sand after five consecutive years of price declines and losses, could new investment have a dampening effect on rates?
“That is too simplistic,” says Huff. “Investment has gone to the legacy firms, while many of the startups are going into specialty lines and niche types of business where the combination of talent and technology makes such a difference when it comes to capturing that business. There’s certainly adequate capital, and it’s a very opportune time to deploy it.”
Waring does not see startups as disruptive, because “even though there is plenty of capacity in many classes of business, there is a general acknowledgement among the risk-taking community, and I think many of the broker community, that the profits—the underwriting results—have not been there in a lot of lines of business and types of risk to make it worth deploying capital”.
“Capital sitting behind the industry has become very demanding,” he continues. “Now there’s far more dialogue and there’s a demanding community of capital providers who want to know that the risk-takers are trying to find places to make stable, long-term results to essentially keep the capital whole.”
And as a result, Waring says, the market is not disrupting itself as much as it might have done in the past, when a lot of new capital came in and there were not enough risks to write.
“You have markets that are willing to walk away a lot more readily from business because they don’t think it’s paying the right price to be sustainable,” he says.
“They understand that businesses take losses, that’s what they’re there for, but if you’re in the business to take hurricane losses, you don’t want to be nickel and dimed by fire losses. The piece the market has found challenging is when they write a risk where they think they’re taking primarily a named windstorm exposure, and then they get a wildfire loss on the premises and say: ‘Where did that come from? I didn’t price for that’.
“As a result, I don’t see startups as being disruptive. They’re more filling in gaps and trying to charge the right prices for it.”
When Waring came to Bermuda in 1995, there were just three or four carriers to bring risks to, a new set of startup reinsurers after Hurricane Andrew in 1992. Amwins is currently pulling together a list of underwriters in the market and, not counting life and long-term business, the list is at 60 and counting.
“Bermuda is not just a startup, high excess marketplace,” he says. “Bermuda is now a complete marketplace, writing every type of business. For pretty much everything you have that needs capacity, where you’re trying to place it at a sensible rate where an underwriter can analyse it and calculate the probability of losses, there’s capacity here.
“And that continues to bring more players because they realise they can get into a place that’s properly analysing, understanding and managing risk.”
Looking to the future, Waring believes Bermuda will continue to be an attractive place for startups.
“One of the key points is that after ACE and XL started in 1987, the industry in Bermuda, along with the regulators and government, went through an extensive exercise to bring in modern, responsive, responsible legislation, to allow insurance companies to be started up and regulated and managed properly,” he says.
“I feel confident that we have a world-class regulator that’s respected for what it does—and it recognises that industry has to be responsive and responsible.
“We continue to have a great balance between regulation and responsiveness. If you want to start a reinsurance company here, and you engage with the regulator and do it the right way, you can be up and running a lot more quickly here than probably anywhere else, but in a way that’s recognised as not taking shortcuts.
“It’s done in a way that’s respected worldwide from a regulatory point of view. That, along with the market here, and the brains trust, is what makes Bermuda a great place for people to come with startups,” he concludes.
