At a time when Bermuda is under fire in the United States for operating a more efficient and less punitive corporate tax system, it is refreshing to know that, for some companies, being in Bermuda is more important than the tax saving. One such company, which voluntarily pays US taxes on its Bermuda income, is Chubb Atlantic Insurance Ltd., part of the Chubb group, for which (among others) Chubb Atlantic Reinsurance Specialists Ltd. ("CARS") writes reinsurance coverage. CARS reports to Chubb Re in Bernardsville, New Jersey. Chubb Re is set up much like CARS, to act as the underwriting manager for reinsurance in the Chubb group.

The obvious question, given the advantage that a lack of corporation tax would afford a company in a competitive market, is: why?

"We see Bermuda as a meaningful reinsurance centre," explained Jed Rhoads, managing director of CARS.

"Brokers bring business here; sometimes, it is placed here in its entirety; and it never leaves the island to show up in London or the US. Bermuda has become a market that no serious participant can ignore."

Mr. Rhoads is intimately familiar with the Bermuda market, having worked here for more than four years. Previously with Stockton Re and then executive vice president in charge of underwriting, actuarial and marketing for Overseas Partners Re (OP Re), he joined CARS this summer, bringing with him a team of underwriters from OP Re to add to the existing core of the CARS team.

"OPL announced in February that it would be entering into the voluntary run-off of its existing business, and the company retained me until April 15," Mr. Rhoads (pictured right) explained. "Ted Dew and Martin Vezina, who were with me at OP Re, came with me to CARS, so we kept part of the OP Re team together. There is a comfort level in working with people you know." At CARS, the trio joined Mike Hoffman, Greg Haft and Lyle McCoy to form a six-man team to underwrite traditional and non-traditional (or finite) reinsurance.

"Finite reinsurance is something of a Bermuda specialty," Mr. Rhoads noted. "An informal definition might be that we write deals with caps, i.e. limitations on our exposure, hence the word finite, and where the purchaser's motivation is something in addition to underwriting risk transfer, such as surplus relief." Whatever the motivation, finite reinsurance always involves a transfer of risk.

Mr. Rhoads continued his definition: "We might help a company de-leverage its book of business, for example. Say a company's premium to surplus ratio is higher than the company would like because business has been so good as a result of rapidly rising rates: we can offer surplus relief by reinsuring the excess."

Companies' reasons for buying finite reinsurance vary, but CARS' clients tend to be large, well-established companies with names most of us would recognise.

CARS acts as an independent underwriting manager, exclusively for companies in the Chubb group. CARS' business is written on different balance sheets issued by a number of companies within the group.

CARS' business is sourced primarily through brokers and is generally multi-year in nature, which means that, unlike some lines of reinsurance, it is not renewed annually or semi-annually, but less frequently.

It often features a large profit return to the cedant, a process by which companies that buy such reinsurance share in the profit it generates.

"Several people believe that finite reinsurance has become less popular since September 11 and because of the Enron situation, but I haven't found that to be true," Mr. Rhoads said.

"CARS has in fact written a significant amount of finite business this year. Although finite reinsurance and alternative risk transfer is now CARS' main interest, Mr. Rhoads was also hired for other reasons.

"We are writing traditional business, too, deals that come to Bermuda and are placed here, that may not find their way to Chubb Re in New Jersey," Mr. Rhoads said, confirming Bermuda's growing importance in all sectors of the reinsurance market.

"Three or four years ago, John Berger, who heads up Chubb Re, did not feel the company was missing out on much business by not having a Bermuda presence, but after September 11, the need for a presence here has mushroomed," Mr. Rhoads said.

"We are here to enhance Chubb's position in the marketplace and capture more deal flow."

CARS, which is located in the Belvedere Building on Pitts Bay Road, writes on paper that is rated 'A++' by A.M. Best and 'AA+' by Standard & Poor's (S&P). He confirmed a growing sense that, since September 11 last year, there has been an increased emphasis placed on companies with the highest ratings.

The industry term 'flight to quality' once meant the desire to deal with companies rated A or better by S&P, but of late has taken on a more general meaning of dealing with only the best, or those rated AA or better.

"The term was used a little prematurely in our industry, but now people are beginning to distinguish between, say, an A. M. Best 'A' and an 'A+' rating, or an 'A' and an 'A-'," Mr. Rhoads said. "That's the first time I can recall that happening in my 21 years in the industry."