How important are hurricanes to Bermuda? The answer is — well, it’s complicated. Hurricanes have played an important role in fashioning the Bermuda in which we live.

The architecture, the foliage and our summers are all shaped and affected by these huge windstorms. Busy hurricane seasons over the last few years have also affected the Bermuda reinsurance market, spurring significant growth and affecting the way we live and the way Bermuda makes money.

For those who own their own homes, property insurance is a necessity. We pay a yearly premium to an insurance company that in return promises to reimburse us for any damage that is covered by the policy (above the deductible).

We have these policies because if any major damage was done to our property in a hurricane, we could not sustain the large loss from our savings. When you have a policy for home insurance it is wise to ensure that the policy covers all those risks that are either likely to occur or those that are just too risky to take on without coverage. In Bermuda, hurricanes are a part of our lives - and the price we pay for home insurance and the availability of insurance products have been shaped by how busy hurricane seasons have been, and how often our island has been threatened and subsequently hit by hurricanes.

Insurance companies are on the front line, making policies with individuals, balancing out on one hand the money that is being taken in on policies each year and on the other hand, the amount of money that is needed to pay those who make claims against their policies — and hoping that the latter does not exceed the former.

Reinsurance is insurance for insurance companies that have taken on a lot of risk. For example, an insurance company in the catastrophe market wishes to pass along (or cede) some of this risk to a reinsurance company, which wants to make a profit on the business that it writes. It follows, naturally, that reinsurers do not like to see a lot of claims come in.

So, with the 2007 hurricane season having just begun, the reinsurance companies that have a lot of their risk in the catastrophe market are apprehensive about the unpredictability of hurricanes.

Hurricanes that do not hit Bermuda but find land elsewhere can also affect Bermuda. When hurricanes cause damage in the United States (as did Katrina in 2005), many reinsurance companies - some of which are based in Bermuda take a huge financial hit. But, similar to the foliage around Bermuda and the sand on the beaches, the reinsurance industry bounces back, as we saw in 2006/07 with the emergence of several new and new to Bermuda reinsurers and the millions of dollars in new capital that was invested in Bermuda domiciled reinsurers.

Of course, reinsurance is not all based around the risk associated with natural disasters. But it is something to think about when making a claim on the damage done by a hurricane — and it is interesting to contemplate how this claim travels up the chain and in some small way can affect the industry that fuels Bermuda’s economy. Adrian Beasley is an attorney on the Insurance Team within the Corporate/Commercial Practice Group at Appleby. A copy of Mr. Beasley’s column can be found on the Appleby website at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters described herein, persons are advised to consult with a lawyer.