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Cash predicts five more years of soft market

A former insurance boss, who now heads the public-funded agency designed to grow international business, has predicted five more years of soft rates for Bermuda reinsurers.

And Bermuda Business Development Agency chairman David Cash also identified three areas of new potential growth for the Bermuda insurance market.

Sharing his vision with industry leaders at the Insurance Day Summit last week, Mr Cash said just moderate success in these three areas would make the Bermuda market “wildly successful”.

They include developing more business from China, expanding the Island's life reinsurance market and growing more business from firms that are interested in asset-driven strategies, instead of underwriting-driven strategies.

Mr Cash said: “I think there is a genuine opportunity to have China look at Bermuda as an important market for reinsurance and develop a relationship for them around reinsurance to be used to bring other kinds of business to the Island from China — much the same way Japanese companies have come to use Bermuda.”

Looking at today's trends, he said overcapacity and less demand is a recipe for reduced pricing. His agency's concern is that it undermines the level of employment in Bermuda. But more companies are still arriving in Bermuda. He sees opportunities for these companies.

He said: “Successful companies find a way to create new demand for their products. And at the moment, P&C [property and casualty] companies in particular are struggling with that. But I think there is an opportunity for Bermuda to play an even bigger role in the market than it is today.

“The US life insurance industry is enormous. It has something like $1 trillion worth of policies — maybe $2 trillion if you include annuity reserves.

“And all those businesses are essentially forced to hold income in highly rated, fixed income instruments. The point is that it is very hard for them to improve their asset returns. They can't easily move those assets to higher-yielding instruments without incurring pretty prohibitive capital charges from their regulators and other agencies.

“But it seems to me that insurance companies in Bermuda have perhaps more capital — and strategies to organise around alternative assets. They could be good partners for those life companies.”

And beyond that sector, he said the market had to look at products outside of the traditional P&C products. And without that, the persistent soft market will remain.

“It will be here for three years, four years,” he said. “If you don't see any real change in the products we sell or an increasing demand for our existing products, the soft market won't disappear. My best guess is that in five years time, there will still be a soft market.”

Mr Cash also believes that the Bermuda market has a real opportunity to significantly grow its life reinsurance business.

“It's probably not well known in this room,” he told a room of executives from insurers and reinsurers, “but the largest reinsurer in Bermuda is a life reinsurer, Athene (Life Re Ltd).

“Athene has something approaching $60 billion in of assets on their balance sheet. It is far bigger than the other Bermuda reinsurers.

“But it only scratches the surface of the life industry. I have no reason not to believe that the Bermuda life reinsurance business space couldn't be hundreds of billions of dollars of assets. And I think Bermuda is well positioned to do something in that space.”

He also said: “The emerging model, the alternative asset management model for reinsurance, I think is a valid one.

“The rating agencies are trying to make sense of that space. They probably say they are going to be careful, going forward.

“It is very reasonable to expect that some of the companies we see today that are experimenting with asset driven strategies, as much as underwriting driven strategies, will come to be a part of the market.

“And Bermuda, more so than any other market or domicile, is a place where you can do those things. The opportunity is there. If we are successful moderately in those three things, Bermuda will be wildly successful.”

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Published June 30, 2014 at 9:00 am (Updated June 29, 2014 at 8:20 pm)

Cash predicts five more years of soft market

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