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Bermuda will ‘find a way’ to stay relevant

AM Best vice-president Robert DeRose

Bermuda will find a way to retain its place as a leading global reinsurance hub amid the sweeping change the industry is undergoing.

That is the view of analysts from rating agency AM Best who were speaking on a Global Reinsurance webinar panel yesterday.

In response to a question from this newspaper on what the future would hold for the Island’s major industry after the mergers and acquisitions spree had played out, the analysts said Bermuda had the attributes to continue to be a force in reinsurance.

Greg Reisner, managing senior financial analyst with AM Best, said he was confident Bermuda would continue to be relevant. The fact that the Island had emerged as the main home for insurance-linked securities (ILS) showed it was adapting to change.

“I think Bermuda will find a way to retain its foothold in the global market,” Mr Reisner added.

Robert DeRose, vice-president at AM Best, said a deep pool of industry expertise and its geographic location were both plus points for the Island.

“Its proximity to the US and the intellectual knowledge on the Island will certainly work for Bermuda going forward,” Mr DeRose said. “I think one of the reasons ILS is taking place is the intellectual capital there.”

He said US-based brokers and clients could visit the Island, see multiple reinsurers and get their business done in a very short time.

“Even those organisations who have redomiciled to Switzerland and Ireland still have substantial operations on the Island,” Mr DeRose added. “Quite frankly they still have big balance sheets on the Island and large reinsurance operations.”

AM Best maintains a negative outlook for the reinsurance sector, as a result of multiple pressures on reinsurers, including low reinsurance rates, low investment yields because of low interest rates, and competition from third-party capital in the form of catastrophe bonds and other ILS.

Mr DeRose said despite these pressures performance had been relatively good, largely because of catastrophe losses had been lower than normal and because earnings had been supported by favourable reserve development.

“Quite frankly we thought favourable reserve development would be slowing more considerably than it has done and they have kept returns in a relatively favourable position,” he added.

The days of double-digit returns on equity were gone, he added. But if reinsurers were to plateau in the high single-digit returns, that would not necessarily be a bad thing, as balance sheets remained very strong.