Bermuda reinsurance industry stalwart Bob Cooney is back in the office he occupied a decade ago — but with a different company and in a very different role.

Mr. Cooney's appointment as managing director of Aon Capital Markets has brought him back to the Bermuda market some 17 months after he stepped down as chief executive officer of Max Re, and 25 years after he embarked on his career in the industry here.

Before his seven years with Max, he occupied several senior management roles with XL Capital, including chief executive officer of its global reinsurance segment, when his office was on the ninth floor of Cumberland House, in Hamilton — the very room from where he now works for Aon.

After taking a year off to relax, spend time with his friends and family, and devote more time to personal projects, Bermudian Mr. Cooney is excited about renewing his career on the Island.

Signing up with global insurance broker Aon meant he crossed from the underwriting to the broker's side. His remit is to expand the Bermuda platform of Aon Re Global (Bermuda), of which he is vice-chairman, and to boost Aon's business providing reinsurance capacity from the capital markets.

It was Aon chairman Michael O'Halleran who first proposed that Mr. Cooney should join the massive brokerage, while the two were enjoying a golfing holiday in Ireland. After giving it some thought, he agreed to accept the challenge. "All my career I've been on the underwriting side," Mr. Cooney said. "My first thought was that brokers and their clients come at it from different ends of the spectrum. But the role Aon presented me was not as a traditional reinsurance broker. Coming into the Capital Markets group, I can bring a client's perspective."

Mr. Cooney believes convergence between the reinsurance industry and the capital markets is growing, as instruments such as catastrophe bonds are used to meet demand for industry capacity.

"There are a lot of investors who are willing to expose their capital to an earthquake or a hurricane, and Aon provides their clients with those options as well as traditional reinsurance solutions," Mr. Cooney said. "I do think that over time the banking and insurance sectors will come together even more.

"Investment banks are looking at this space as much as Aon and they are formidable competitors. While I have great respect for the Goldman Sachses of this world, I don't believe they are number one in understanding risk and knowing all the details and workings of the reinsurance industry. That is where Aon is number one in the world and we believe we can compete in this space."

In the current difficult climate on the world equity markets, investors are looking for the kind of diversification that cat bonds can offer, Mr. Cooney said.

"Cat bonds do not correlate with the markets or with interest rates," he said. "Institutional investors, like pension funds, might want to put one or two percent of the fund into this asset class. The returns can be very reasonable, if there are no losses.

"Cat bonds are linked with low-probability events, that would hit in places where there are a lot of buildings and people, things that might happen once in 100 years. So the true risk is maybe one percent.

"The bonds may provide capacity for Japanese windstorms or a California earthquake, for example."

Mr. Cooney said cat bonds could offer better returns than US Treasury bonds and he expected more funds to be attracted to them, producing increasing amounts of non-traditional reinsurance capacity.

"There is a lot of capital out there looking for places to be put to work," Mr. Cooney said. "Say a fund with $10 billion of assets decides to invest two percent in cat bonds — that's $200 million. If enough of these big funds invest one to three percent of their assets in reinsurance then that will create a lot of extra capacity.

"Aon Capital Markets is very ambitious to see the business grow exponentially." Mr. Cooney describes himself as "bullish about Bermuda". He said the Island was the obvious choice of domicile for any new reinsurance company, as it boasted an excellent industry infrastructure together with tough, but business-friendly regulation.

He believes the Bermuda market will compete well as the insurance industry grapples with the effects of a soft market. With the Island's insurers and reinsurers flush for cash after a couple of years of low catastrophe losses, and insurance rates falling, Mr. Cooney anticipates that history will repeat itself in that mergers and acquisition activity will increase.

"The bigger companies will be looking to grow and diversify their business," Mr. Cooney said. "That usually happens at this stage of the cycle. Stock prices fall because Wall Street sees profit margins being squeezed. So the bigger companies, with more diversified business, have a premium on them.

"Smaller companies tend to be less appreciated and more under-valued and they give the bigger companies an opportunity to grow. I think there needs to be consolidation. Bigger is better. Diversification is worth a premium."

Mr. Cooney said this had happened to many of the wave of companies which set up in Bermuda to meet the need for property and casualty capacity after Hurricane Andrew in 1992. "It will happen again," he said. "This is the time in the cycle when forces are aligned. And Aon will be a financial adviser to buyers and sellers. We understand their businesses better than the investment banks, we have the most data and we know their people."