A departing veteran insurance underwriter has expressed confidence Bermuda underwriters will keep their heads, while others around them are losing theirs.

Thomas V.A. Kelsey shares concern that re/insurance underwriters, faced with some of the most severe competition they've ever known, are abandoning underwriting discipline in search of market share.

Mr. Kelsey has been president and CEO of School, College and University Underwriters, Ltd. (SCUUL), the Bermuda domiciled reinsurance company, and its parent SCUUL Ltd.

He is a director of the two companies and a director of Risk Capital Holdings Inc., Risk Capital Reinsurance Co., GAN National and GAN North America Insurance Companies. He is also a consultant to insurance and reinsurance firms.

He said, "The whole US market is awash with capital and has become incredibly competitive. We can't operate in Bermuda without being influenced by it, or the London market. It is a global market. And if one part of it is in a hyper-competitive mode, it will affect us down here in some way. We can't avoid it.

"But I think there is a better chance of maintaining some discipline here, because of Bermuda's limited size compared to the US where there are hundreds and hundreds of companies.

"Here, the pressure is not on the underwriting side of the house to grow the business as logarithmically as is the case in the US. Here, they certainly want to grow, but they have found another way to do it. They go out and acquire.'' One example is ACE Ltd., which started with a core business of excess liability. Just like other Bermuda firms, ACE has refused to write business that they know is underpriced.

But as that market became more competitive, with more people chasing the same business and driving the price further and further down, ACE moved on to other lines of business.

In some cases, instead of developing new business lines, they outright bought them. Examples include Tempest Re and CAT Ltd., which are significant chunks of the property catastrophe market of Bermuda.

Said Mr. Kelsey, "I'm not suggesting that there isn't an underwriter here who hasn't sharpened his pencil to try to renew a piece of business he has on his books. There's nothing wrong with that. But of course, when it is new business that is being proposed and undesirable rates, then it is really time to be careful.'' When Tom Kelsey came to Bermuda five years ago to head up SCUUL Ltd., 38 years had passed since he'd last been here on spring break as a senior at Dartmouth College in New Hampshire. So much had changed.

He is leaving Bermuda again, but promises it won't be so long, this time, before he returns. At 65, he and his wife are retiring to their home in New Providence, New Jersey, population 18,000.

He will continue his "sideline'' job as a professional arbitrator, which he began around the same time he came to Bermuda five years ago.

He said of Bermuda, "This is a terrific venue for doing arbitrations. What Bermuda perhaps, has to do a little better is make people understand that the arbitration rules here provide a flexibility, which you may not have in the states.

"The American Arbitration Association Rules are fine, but there may be instances when it may be advantageous to have the arbitration in Bermuda.

"And I think that when the arbitration clauses are being laid out in reinsurance contracts, Bermuda's got to say more and more to these Bermuda companies to specify Bermuda as the venue for any arbitration.'' He was recruited here in the early nineties as key corporate elements of a new insurance and reinsurance market were taking hold. He would be forgiven for being so surprised that the sleepy Bermuda he remembered had become a new market model for risk transfer.

There were other surprises, like road traffic. When he last left Bermuda in 1954, the motor car was virtually non-existent.

But a bigger surprise, perhaps, was that many of the people behind the new insurance vehicles here were people he knew from a long distinguished career in the insurance industry.

He said, "It was a big surprise to see how much development had taken place here. I knew Bermuda had become a significant captive domicile. I arrived thinking the market was essentially captives and captive managers, more of the accounting side, as opposed to the underwriting side. I didn't expect this to be a terribly exciting market.

"But I arrived here in 1992 and found that ACE and EXEL were up and running very successfully. And Mid Ocean Re had started just three months before I arrived.

"It turned out that people working in those companies I knew from my prior life in the states. One by one, I made the rounds to see them as this place just exploded in the first six months I was here, with all the `cat companies coming down.

"And of course ever since then, it has just been one special purpose insurer after another that's arrived. It has to be the most dynamic insurance market that I've worked in since I started as a youngster in the business in the 50's when the market in the states was re-organising itself. Bermuda was a very pleasant surprise. There is a full market here.'' Prior to coming to SCUUL, Mr. Kelsey was executive vice president and chief underwriting officer of Chubb & Son Inc. and was also executive vice president of the Chubb Corporation.

He had been with Chubb almost continuously since graduating from Dartmouth in 1954, the same year he had his first taste of Bermuda. There was the two year service with the US Army Medical Services Corps in the fifties.

Before he arrived, SCUUL had been run for about five years by the board of directors with a little executive committee that didn't really have a full time CEO on station.

SCUUL Ltd. subsidiaries include the Class 3 insurer, SCUUL, and Delaware company, United Insurance Management Co. (UIMC).

SCUUL Ltd. and its subsidiaries provide excess liability and educators' legal liability coverage to various schools, colleges, universities and education-related associations in the US as both a direct insurer and reinsurer.

The majority of SCUUL's business is reinsurance coverage assumed from United Educators Insurance Risk Retention Group, Inc., a mutual insurance company acting as a risk retention group under the laws of Vermont.

The company was formed when more than 50 educational institutions pooled their resources to provide the capital backing. Today, the firm insures about 1,100 institutions.

Thomas Kelsey