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The world’s centre of reinsurance excellence
Bradley Kading reviews issues confronting the Association of Bermuda Insurers and Reinsurers.
Welcome to Bermuda for the World Insurance Forum. We have much to learn from the featured speakers and guests and we hope, in turn, to pass on some insight into Bermuda’s thriving insurance domicile.
The Association of Bermuda Insurers and Reinsurers (ABIR) represents 18 major international insurers and reinsurers. They are all Class 4 companies, the most highly capitalised insurers and reinsurers licensed by and regulated on the Island. Our members are market leaders around the world in insurance and reinsurance and operate with headquarters here and business subsidiaries in the US and Europe.
According to year-end 2004 financial statements, the association’s members wrote more than $43 billion in premium, and had aggregated surplus exceeding $44 billion. At year-end 2005, the members had a market capitalisation in excess of $50 billion.
The insurers and reinsurers ABIR represents are substantial companies and long-term players. According to Standard & Poor’s Global Reinsurance Highlights (2005 edition), 13 of the world’s top 40 reinsurers are based in Bermuda; and Bermuda is now ranked the fourth-largest reinsurance domicile in the world after Germany, the US and Switzerland. Bermuda carriers have the third largest aggregate surplus, putting them ahead of the Swiss carriers on the S&P list. Finally, S&P estimates there is $160 billion in capital supporting the global reinsurance market, and based on that measure, 28 percent resides with Bermuda Class 4 carriers.
And our numbers are growing. According to the Bermuda Monetary Authority (BMA) 11 new Class 4 carriers were licensed in 2005. Most of these companies raised capital and wrote new business during the January 1, 2006 renewal season. This was the fourth wave of capital and company formation in Bermuda in the last 20 years. We have our growing pains, but Bermuda is now an established centre for excellence in insurance and reinsurance. The Bermuda carriers will become increasingly important in the global insurance marketplace.
With growth come challenges. ABIR’s mission focuses on regulatory issues. Our goals for 2006 include working with the BMA on important regulatory topics for the Class 4 carriers; working with US policymakers on solvency regulation, catastrophe risk management and market access issues; and working with the International Association of Insurance Supervisors (IAIS) with respect to insurance accounting and solvency regulation standards. We will also be reaching out to the key regulators in the European Union and the US—domiciles in which many of our members have subsidiary corporations.
As the Bermuda market grows, the world’s insurance regulatory system is in transition. Participating in the World Insurance Forum will be leading regulators from around the world, who will discuss how the future regulatory system will be shaped. The regulatory environment is influenced by securities regulators, accounting standard setters, rating agencies and, most importantly, the insurance regulators themselves.
International “financial overseers” also are testing the leading domiciles’ insurance regulatory frameworks to see if they are up to the demands of the global economy. With the implementation of the EU’s Reinsurance Directive, the ongoing development of the EU’s Solvency II agenda and the coming deadline for the International Accounting Standards Board (IASB) to create insurance accounting standards, we expect the scope and depth of insurance regulation to be dramatically altered by the end of this decade. As an association, we will strive to see that this new regulatory framework operates efficiently; avoids restricting market innovation; promotes free trade; and establishes appropriate solvency regulation protections for consumers.
While this regulatory agenda is being shaped, we are confronted with our own market challenges.
Following two intense years of US hurricane activity, rating agencies have substantially altered the playing field by imposing new capital requirements; catastrophe modelling experts are recalibrating their frequency and severity models; and insurers are analysing their actual losses compared to their loss expectations. Bermuda-based insurers and reinsurers will pay nearly 26 percent of the insured losses arising from the devastation caused by the record setting 2005 US hurricane season. The Bermuda carriers’ expected payout is currently estimated at $13 billion (based on a $50 billion total), the largest share expected to be paid out by non-US insurers and reinsurers.
The 2005 hurricane season is not the first time Bermuda’s insurers and reinsurers have contributed substantial funds to US rebuilding. Bermuda-based carriers are estimating they will pay nearly $4.5 billion (20 percent) of the insured loss from the 2004 hurricane season, with its $21 billion in estimated insured losses from four Florida land-falling storms. After the terrorist attacks of 9/11, Bermuda-based insurers and reinsurers have estimated they will pay claims totaling more than $2 billion (6 percent) of the now estimated $32.5 billion in total insured losses. Due to these catastrophic losses from 2001 through 2005, Bermuda’s insurers and reinsurers estimate they will pour more than $19.5 billion into US reconstruction, about 19 percent of the insured loss total. In spite of these challenges, our companies remain strong and are well positioned for growth. Analysts estimate that in the last three months of 2005, $18 billion in capital has been raised by existing and start-up carriers in Bermuda.
Bermuda’s regulators have proven themselves up to the task of both licensing solid new competitors entering the field and then supervising as the start-ups become big international players in the business. Bermuda’s policymakers have created a business environment that nurtures free enterprise with informed regulation and necessary infrastructure. Now that a critical mass of expertise is centred on the Island, its success as a business centre is assured
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