Hugh O’Donnell, chief executive officer at Bermuda Brokers, told Monte Carlo Today of two main developments in Bermuda’s evolution as a “vibrant and diverse” marketplace.

There has been an “explosion” of managing general agents (MGAs) that are being driven increasingly by artificial intelligence (AI), he said.

“When I established Bermuda Brokers a little over 10 years ago, the goal was to serve MGA clients. I’m an accountant by background and we gravitate to that field because it’s very much about client servicing and closer relationships with a small number of clients, and that’s suitable for a boutique broker like us,” he said.

“The MGA world has completely exploded and the amount of business which is going through them is significantly larger than it has ever been before. The COVID-19 pandemic has given the market time to sit still and think, and brilliant underwriters have decided ‘maybe it’s time for me to wave my own flag’,” O’Donnell said.

“We can all see how AI is kicking into the underwriting cycle. A few years ago, everyone was talking about insurtech and that very often meant a way to get closer to the customer, but what we’re seeing now is AI enabling them to say: ‘I can underwrite, I can select risk, and I can do speed of turnaround better than anybody’,” he said.

“It’s the nature of things that MGAs are at the forefront of that because if they don’t have an edge, they don’t survive. But equally you can see companies such as Mosaic that very clearly see this as one of their structural advantages. For us, business is very good because the nature of a boutique broker is that we have boutique clients, and AI-powered MGAs are absolutely fascinating to us.”

Intangibles

The Bermuda market has discovered a “very good fit” between the world of intellectual property (IP) and the world of reinsurance, O’Donnell went on.

About 90 percent of the market cap of the Fortune 500 companies is represented by intangible assets, such as brands, patents, confidential information and know-how, he noted.

Smaller, growing companies need capital and, traditionally, that has come from the equity market, he said, but equity isn’t as available or affordable as it was before, while banks find it hard to lend to them.

“What these companies need is a specialist lender who understands that those assets are worth something, that they’re tangible in the financial sense,” O’Donnell said.

That’s where the insurance industry has identified an opportunity, by providing a policy to insure against the eventuality that a loan “fails to perform”, he said. A large insurance company with reinsurance support makes a bank loan “so solid” that banks are willing to proceed, he said.

“Isn’t that fascinating? The huge banking industry, with all its resources, is turning to the re/insurance industry to make something happen that they find very hard to make happen. I am very excited about it.”

IP is worth about $13 trillion globally and that number is increasing by “billions and billions” every year, he said.

“That’s a huge ecosystem but within it there are very clear niches of people who need capital and people who want to lend but who can’t get round the risk,” he explained.

“We’re talking to our insurers and reinsurers about how they could be supplying capacity to this very profitable opportunity,” he concluded.