A tipping point for reinsurers

Bermuda has been and will continue to be the nexus of delivering efficient sources of capacity and protection to insureds when and where it is needed. The Island has consistently shown that it is able to evolve and adapt to meet the market’s needs, according to Kathleen Faries, deputy chair of ILS Bermuda and head of Bermuda at Tokio Millennium Re.

This is evidenced by Bermuda’s history as a major international market player, starting in 1986 with the formation of ACE and XL as excess line carriers. The class of 1993 was the beginning of property cat specialists, with eight carriers forming. The class of 2001, post 9/11, saw the development of multi-line carriers, with nine additional carriers.

Bermuda hosts the largest property-catastrophe market in the world. After the catastrophic events of 9/11 and hurricanes Katrina, Rita and Wilma, Bermuda saw a surge of new capital. Post Katrina, the Association of Bermuda Insurers and Reinsurers (ABIR) reported $21 billion of new capital raised, with $18 billion going to Bermuda. $8.5 billion went to new reinsurance start-ups along with $3 billion in sidecars plus $4 billion in cat bonds. The draw of capital to Bermuda in the wake of huge market losses points to the Island’s strong position in the global insurance markets and robust regulatory environment.

Creativity and transformation

“Today, Bermuda remains well positioned to be a leader in risk innovation,” says Faries. Alternative reinsurance capital is now estimated as $75.1 billion according to Aon Securities in its latest Global Insurance Market Opportunities report, showing growth of more than 10 percent over last year. Aon predicts this will rise to $100 to $125 billion in several years’ time.

“The next decade offers a unique opportunity for increased growth, innovation and development, with data and analytics expertise assuming a far more important position in the marketplace than was the case just 10 years ago,” says Aon. The report further notes “What the insurance industry is calling ‘disruption’ is not fundamentally about disruption; it is about creativity.”

“It is clear that companies need to embrace and nurture a culture of driving transformational change,” adds Faries. “The need for innovation is clear to many in the reinsurance industry. Leveraging technology to transform the market is now a key focus area for strategic development.

“The traditional reinsurance model is undergoing a seismic shift. The flow of alternative capital into the property catastrophe market has fundamentally changed the economics of this line of business, forcing traditional reinsurers to rethink their own operating models. This tipping point will prompt companies to look closely at technology and new ways of matching and moving risk to the most appropriate capital base.

“I fully expect Bermuda once again to be at the forefront of this evolution. We have already seen the rapid acceptance of this new capital by Bermuda companies, with many adding insurance-linked securities (ILS) asset management to their platforms in the form of sidecars, cat bonds or risk facilitation and fronting.

“We have only seen the beginning stages of this transformation. It will continue to accelerate as this capital finds more efficient ways to access risk across the entire value chain,” says Faries.

“The annual ILS Bermuda Convergence event has become a staple in the conference calendar and is an excellent opportunity for market participants to network and enjoy the perspectives of industry leaders. Topics relating to risk innovation, capital, data and analytics, technology, the protection gap, investments and their relative trends will be discussed in this year’s event on November 9 and 10.”

As the traditional landscapes changes in the evolving environment of risk, Bermuda continues to showcase itself as a leading centre for risk innovation in the world today.

“Bermuda continues to be at the centre of the steadily growing ILS market. With this year showing further development and expansion of the market, we expect there will be no shortage of topics of interest and opportunities for our guests to discuss during this year’s ILS Bermuda Convergence event,” she concludes.