It used to be that whenever there was a large catastrophe in the US, investors would scramble to set up a reinsurance company in Bermuda. But those days may be over, according to analysts from ratings firm AM Best.Speaking at the AM Best’s 2012 Bermuda Insurance Market Briefing at the Fairmont Hamilton Princess yesterday, a group of analysts for the company said that while business is strong in the Bermuda market, new breeds of reinsurers are making “class of” reinsurers a thing of the past.“You know, we get this question all the time: ‘Is there going to be another ‘Class of’?’ and we really don’t think so,” said Bob DeRose, vice-president and analyst with AM Best. “We don’t see any significant or meaningful changes to the landscape over the near-term.”The term ‘Class of’ is commonly used in the re/insurance market to denote years that contained or followed a major catastrophic event that then triggered a significant infusion of new capital into the marketplace.Out of the wake of hurricanes Katrina, Rita and Wilma came the ‘Class of 2005’ reinsurers — companies like Validus, Lancashire, Amlin and Ariel, to name a few — companies that came to Bermuda, were able to set up shop quickly and now employ hundreds of workers.Katrina, the most destructive and costly hurricane on record to date, cost more than 1,800 lives and $60 billion in insured losses — flattening New Orleans as well as much of the local catastrophe insurance industry.Those losses were the start-up insurers’ and reinsurers’ gains in 2005, just as losses from previous catastrophic events prompted similar rushes of reinsurance. In 1992 and 1993, following Hurricane Andrew, there was a large influx of capital into the Island to form Bermuda catastrophe reinsurance companies. Following the 9/11 attacks in 2001, more than half of the new capital raised globally for the reinsurance market came to Bermuda.Along with the capital flow, came talent, intellectual capital, and job creation. No other country in the world has a higher percentage of actuaries, accountants or underwriters among its population.But the analysts at AM Best agree Bermuda likely won’t see another ‘Class of’ unless there is a major catastrophic event as big as or bigger than Hurricane Katrina or the attacks on the World Trade Center.“If there were a really, mega type of loss event that created a very broad opportunity like September 11th did in 2001, I would never say never. But it would probably take a loss of that magnitude and proportions to stimulate the need for new companies.”Mr DeRose said that the formation of any meaningful sized companies in Bermuda for the longer term isn’t likely thanks to the advent of sidecars and other alternative reinsurance vehicles, which he says are much more preferable to investors because of the flexibility of the capital.“They [investors] can come in, take advantage of a market opportunity, and they can leave relatively easily until the next opportunity represents itself. That’s kind of what the hedge fund strategy is. While there are no underwriting opportunities, we allocate the capacity to our investment strategy and when there’s a dynamic underwriting opportunity, we can take down the asset risk and take advantage of the higher returns available on the underwriting side.”While 2011 set global records for disaster losses of about $100 billion, mostly due to US tornadoes, earthquakes in New Zealand, Thailand flooding and the earthquake and tsunami in Japan, there wasn’t the same rush to set up shop in Bermuda. There was however, still an influx of capital.About $7 billion of new capital has entered the Bermuda market via insurance linked securities after the events of 2011, according to AM Best.“The capital coming in a lot of it went into facilities like hedge-fund backed reinsurers, sidecars, collateralised private reinsurers and catastrophe bonds,” Mr DeRose said.“Keep in mind a large portion of that capital is dedicated to investment operations so even though you see $500 million or $1 billion coming into the marketplace, it’s not being allocated to underwriting initiatives.“Hedge fund backed reinsurers are the flavour of the day to some extent.”AM Best rated three new hedge fund backed reinsurers this year including Bermuda-based SAC Re, Ltd, a Class 4 reinsurer managed by SAC Capital Advisors — the hedge fund founded by Steven Cohen that is currently at the centre of an insider trading investigation.AM Best group vice-president Jon Andre yesterday said their CFAs are following the case closely.“Certainly SAC’s made headlines in the last couple of days and these two gentlemen we work with are vetting it as we speak and looking at what impact this might have on the sponsored reinsurance company they have.”Mr Andre added that just as their analysts closely monitored Class of 2005 start-ups, so too will they monitor any new hedge fund-backed companies that have formed in the last year or so.As for the overall growth in the Bermuda market — AM Best says it’s been significant, with $20 billion in capital growth year to date. The firm’s analysts said when looking at the global nature of the industry, the regions of the world they consider to be reinsurance centres are: Germany, Switzerland, Bermuda and London.“Bermuda certainly is holding its own in that regard and there are a number of reasons why. I think innovation that the island has exhibited over the years has certainly been a favourable attribute,” Mr DeRose said.“The favourable regulatory environment — the ease with which to start up operations has certainly played a role.“I think the Bermuda Monetary environment has certainly demonstrated wherewithal in terms of coming up to equivalence on Solvency II and improving the regulatory regime and I would say they’re actually a leader now.“If you look at what’s been going on with Solvency II in Europe, it seems like it’s constantly being delayed. I view the BMA being well ahead of that curve and certainly well prepared to gain equivalency should that event ever occur.”