A year of diversity and progress
Partnerships between traditional capital and insurance-linked securities (ILS) will become the new operating model in the future, according to John Huff, chief executive of the Association of Bermuda Insurers and Reinsurers (ABIR).
According to Huff, many of the discussions at September’s Rendez-Vous centred around alternative capital/ILS and the traditional market and he thinks that now might be the right time to change how the market deals with the two.
“The way forward will be a blend of traditional reinsurers and those traditional reinsurers using ILS or alternative types of capital as part of their value proposition. We can only be stronger together,” he says.
Huff concedes that there will always be competition of some sort between the two, but he adds that to put it into perspective, participants are all trying to achieve the same goal, to highlight it in the Bermuda market.
“There’s no doubt that the Bermuda market does traditional reinsurance very well, and it does ILS very well, so using reinsurers’ expertise and partner capital together makes us a superpower,” he says.
According to Huff, the key to Bermuda’s remaining at its place at the head of the market is diversification, a word that, he feels, has been over-used in the market. He says what it really means is making the Bermuda market future-proof, a term he is increasingly using.
“It’s not a term you hear in financial services, but if you look at the definition, it’s how to make your enterprise, market or business safe against obsolescence, and how to survive the challenges you face. You do that by diversification.
“Partner capital brings enterprises as well as the market more cohesively together, but in terms of diversification Bermuda will always be the leader in nat cat coverage.”
Bermuda widens its net
Huff adds that many of the conversations in Monte Carlo were on that topic, but that Bermuda players are also diversifying into specialisations. They are doing this in a narrow but deep fashion, so whether it’s in cyber, flood, mortgage, or whatever area they’re considering, companies are not dabbling in those areas but rather making a concerted effort to learn the business and then go deep into it.
“It’s a brilliant strategy. It’s good for Bermuda and for those individual firms, because they’re going in with eyes wide open. On all those specialisations, such as cyber, there have been lots of discussions about cyber aggregations, accumulations and other issues.
“There might be silent cyber already in their business. Cyber is being embedded into areas such as D&O and E&O, so how do you transition that into standalone cyber?
“Insurers have a significant and responsible role in improving the cyber hygiene of businesses all over the world, just by the underwriting process. You can be a customer of insurer X only if you’ve gone through these steps of improving your cyber hygiene.”
Huff says the diversification of the firms who are continuing with bread and butter nat cat business, where the market is soft at the moment, is happening because they can’t rely on that nat cat business alone—they need to take a strategic view of the marketplace.
One year in
Huff points out that he was not a novice to the market when he started at ABIR in January 2018, having been travelling to Bermuda for 20 years.
“I’ve always had a healthy respect for the Bermuda market and that’s why I was so interested in joining ABIR. I’ve done some arbitrations in Bermuda and before that I worked for an international reinsurer, and I was a regulator in the US for eight years before becoming president of the National Association of Insurance Commissioners (NAIC).”
Huff says his time at NAIC gave him the added experience of working with the Bermuda Monetary Authority. As a regulator he also worked with the US county mutuals—the smaller insurers in the US that, he stresses, are so vital because they’re embedded in the fabric of insurance coverage.
According to Huff, they rely a great deal on the Bermuda market for reinsurance and coverage. This is because of the very nature of a small county mutual: with a concentrated footprint of coverage, they have to be diversified for their reinsurance and the Bermuda market does a fantastic job of assisting them.
Looking at the future, Huff underlines that it is important to go both on and off the Island, to obtain a wider perspective and maintain Bermuda’s place at the head of the pack.
“Bermuda has a tendency to forget sometimes that it’s competing globally. It’s important to remember that all the work being done there is not in isolation—every day it’s in competition with markets across the world,” he concludes.
