Dont expect waves of new insurance companies, says XL Insurance boss
Bermuda will not likely see a new wave of large brick-and-mortar insurance companies like it has following previous spikes in demand for new capacity, but rather an influx of smaller alternative capital arrangements, like sidecars and catastrophe bonds.
This is the view of Greg Hendrick, CEO of XL Insurance, speaking to The Royal Gazette at the 48th annual RIMS conference this week.
Though eight Class 4 re/insurers have formed in the last five years, including Third Point and PaC Re, the new class of capital is likely come in another form: special purpose insurers, such as sidecars and insurance-linked securities (ILS).
I dont see a big brick-and-mortar play, nor do I see a dislocation of capacity in size and scale that would call for another wave of brick-and-mortar companies, said Mr Hendrick.
I believe the future, in terms of new capital coming up, will be in sidecars and other types of arrangements that arent fully fledged new companies but rather capital accessing existing management teams and expertise.
He added that Bermudas market hasnt really undergone any significant consolidation like it did 20 years ago following Hurricane Andrew.
I started after 1992 and in the intervening nine years, there was a wave of consolidation — XL buying two companies, Ace buying two, he said. But since then, we havent really consolidated as an industry — even after 2001 and the 2005 players.
Bermudas insurance future industry landscape may be altered somewhat but the new capital influx, said Mr Hendrick, is a positive one. Within the first three months of 2012, Bermuda has seen four new SPIs created.
Im a big believer, he said. We executed one of the early sidecars, Cyrus Re, after 2005 with $500 million in capital. We have bought cat bonds in the past and we have traded with some of the ILS-specific funds in terms of ceding some of our risk over the years to them.
We are very big believers that that is a market that will complement the existing insurance and reinsurance capital not only in Bermuda but globally as well.
Overall, Mr Hendrick says XL, which has been a mainstay on Bermudiana Road, is here for the long term and, even in this tough economy, staffing levels will remain the same.
From an XL perspective, were as committed as we ever have been, he said. Both our reinsurance and insurance operations remain very strong and staffed at levels that are the same from prior years. So as long as customers continue coming, we will be staffed at the same levels.
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