The evolution of the Bermuda market
Since it emerged out of the liability crisis of the mid-1980s, Bermuda has faced many challenges — perceived or real — to its hegemony as the world’s pre-eminent offshore re/insurance market.
Naysayers have long pointed to internal factors such as political risk, restrictive infrastructure and a high-cost operating environment as impediments to the island’s progress.
Among the external threats are the perennial attempts by US lawmakers to erode Bermuda’s tax advantage and the disruptive forces of the insurance-linked securities revolution which have reshaped the reinsurance landscape.
The roster of the reinsurance entities and supporting cast located on the island now tells its own story of how Bermuda has evolved as a reinsurance market.
Despite the many changes, to date it has certainly held its own, and arguably thrived, as the go-to jurisdiction for offshore re/insurance capital.
But the headlines at the start of 2018 will doubtless be seized on by those wishing to tell a story of an island in demise.
The imminent takeout of Validus by AIG, an uncertain outlook at Aspen and reports that XL is the subject of serious interest from Allianz and other potential buyers means the number of publicly traded Bermudians could dwindle to just five in short order.
Of those survivors, recent acquirers RenaissanceRe and Axis look more like targets now than when they bought Platinum and Novae, respectively.
The pattern for publicly traded Bermudians to be swallowed up has gathered pace in the last three years, with Montpelier Re, PartnerRe, Allied World and Endurance now merged or taken private by new owners.
Inevitably that means jobs disappearing from those companies on the island and operational shrinkage — whether because of the reduced compliance and financial reporting requirements of private entities or M&A synergies.
Onshore ownership in some cases means a shift of management from the island too, while a reduction in companies means fewer prestigious headquarters in Hamilton.
So what does that say about Bermuda and its status in the global re/insurance market?
Arguably, not very much.
The disappearance of public companies has also been a trend in London, where Lloyd’s has lost all but three of its listed players in a wave of M&A over the last decade.
But Lloyd’s as a market has not shrunk — indeed its underwriting capacity has increased almost every year since 2008.
And there is no suggestion at this stage that the size of Bermuda’s re/insurance market has been significantly impacted by the exit of its publicly traded carriers.
Business is still being placed and the broker presence on the island remains strong.
Of course, similar to Lloyd’s, the make-up of the market has transformed. The wave of total return reinsurers has largely been centred on Bermuda — with continued interest from potential start-ups — and the island is now home to some of the biggest legacy balance sheets around.
The decision by AIG to consolidate a huge portion of its legacy business into DSA Re — a $40 billion Bermudian reinsurer — shows the efficiency and business-friendly regulatory framework the jurisdiction continues to offer.
And perhaps the biggest development has been Bermuda’s rapid rise to become the location of choice for the ILS funds that now provide a significant proportion of global property cat capacity.
In that sense, Bermuda remains a key destination for capital and the risk that seeks to use it.
The names may change, but for now at least Front Street continues to be a prime draw for capital and innovation.
• Reprinted with permission from The Insurance Insider and the author
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