The US insurance market still offers a vast array of mouth-watering opportunities for reinsurers—yet every company is targeting the market in a different way. Bermuda:Re+ILS asked the bosses of Hamilton, Hiscox, Aspen and Tokio Millennium Re to elaborate on their US strategies.
It’s a bit like asking four lawyers the same question—you end up with four different answers (and a large bill.)
Ask four reinsurers about their strategy for the US market and you get four very varied answers but, thankfully, no bill.
The US is the world’s largest insurance market and it cannot be ignored, but strategies on how to win that business or get a foothold in the first place are wide-ranging and vary from the use of technology to building personal relationships.
Take the view of Brian Duperreault, president and CEO of Hamilton Insurance Group. He has established a US presence, but expanding the physical presence is not necessarily the plan.
“It is not really an office strategy approach. In the near term, we will concentrate our talent and use technology to make our presence known country-wide,” he says.
“There are ways of using the distribution systems that exist. We will have a relationship with the brokers and agents that is more technology-based, data-driven and efficient. You will draw a crowd and we expect that will be the best way to go.”
Conquer through innovation
To pursue the technology route, it is vital to be able to innovate and Duperreault sees two ways where innovation is possible.
“One side is making sure that the organisation you put together is organised in the most efficient way possible by getting the technology state of the art, processing-wise.
“From a processing point of view, if you get to a point where ‘no hands touch the process’ from beginning to end that is a technological advantage.
“Another way is analysing risk and determining how we want to treat that risk using data. That is another innovation. There are massive amounts of data. That gives us the opportunity: it is data-rich and the technology is advanced—all the things you would look for in a market.”
Twenty years ago, Duperreault says, a company had to project itself, whether country-wide or globally, with a physical presence—the technology was not there to do otherwise. “And so you had to have branch offices, and you had to have your people basically well entrenched in the local market.”
He adds: “Today having local knowledge is still an important issue but you can see that the producer world has changed. There is a lot of aggregating, hubbing. Different entities use different terms, but it is the gathering of the business into more central locations and then placing those in the market. That is happening more and more.
“We could have quite a few offices, and we may do that, but we will test the premise that you do not need to have as much physical presence because there are other ways for you to have an interaction with your client and your producer.
“Our approach is to have a balanced portfolio, and diversification is primary. The US is a natural place to begin the diversification. It would be business that would naturally lend itself to some technology application, where the premium dollar has a lot of processing cost. There you can make a difference,” Duperreault says.
“I think the market will move us in the direction we need to move. Whether that is through need or through data, we will see how it goes.”
Feet on the ground
Tokio Millennium Re (TMR) recently formed its first US operation in Stamford, Connecticut. A press release announcing the move stated: “The US Branch will focus primarily on non-catastrophe risks to further expand TMR’s stated intent to diversify its risk exposure.”
In the release, TMR’s chief executive, Tatsuhiko Hoshina, stated: “The US branch aims to have our ‘feet on the ground’ to broaden access to our US cedants and brokers and will position us well for the future growth in the US reinsurance market.”
The growth will be mirrored in the growth of the size of the TMR offices in the US, as Hoshina says: “By end of 2016 we expect the US branch to be the largest entity within the TMR group.
“We will have more underwriters and our actuarial team there. We want a ‘feet on the ground’ approach, to see our clients, to see our brokers and to enhance our marketing to make sure that people recognise who we are and what we have to offer.
“For me it is about long-term relationship building. Our strategy is always long-term and we see an indelible presence in the US. We have written US market on the cat side from Bermuda since 2000 and non-cat from Bermuda since 2010, but as an on-shore reinsurer in the US we started in June 2014.”
He adds that TMR wanted to diversify both geographically and in its lines of business and that the company believes there are big opportunities in the US.
“Even though the biggest losses can come from that market, we thought it was a great place to expand if you play your cards right,” says Hoshina.
The US operation will focus on non-cat lines, with the cat business still being run from Bermuda. On the softening of the market, Hoshina says: “Growth is coming from customised areas. That is where we see the added value. We try and come up with a unique product for our clients.”
Up close and personal
The chairman of Aspen Re and CEO of Aspen Re North America Brian Boornazian was hired specifically to establish the company’s US presence back in 2004.
“We believe that to be the best underwriter, the closer you are to the risk and the original marketplace the better understanding you will have and the better the long lasting solution you will be able to develop for customers,” Boornazian says.
“We feel that by being close to the risk, you understand it and the marketplace better. We bring in local talent to develop strong local relationships. We get a much higher quality solution that is of real benefit to our customers.”
That strategy meant developing a US structure which has its major hub in Connecticut and an office in Miami, which is the location for Aspen’s Latin American business. The other offices in the US are smaller satellites, designed to keep the company close to the client.
“They are a great pool of knowledge. They have an up close and personal view of the market to feed to treaty underwriters. It is about putting people with local knowledge in the right areas.
“If you do not have that local knowledge and expertise, it is not easy to keep your finger on the pulse in terms of what is going on in a particular area at any given time; for instance, the legal system varies from state to state and it is important to understand the nuances,” says Boornazian.
“We bring in local talent to develop strong local relationships. We get a much higher quality solution that is of real benefit to our customers.” Brian Boornazian
“We are very precise in how we look at the market and we look for specific pockets within any area. When I talk about pockets I mean specific companies that do good underwriting jobs and have profitable lines of business. That is where we are seeing business right now and being close to the customer is very important to what we do.
“We remain extremely confident in our ability to thrive because we have invested in staff and in infrastructure in the US. Having strong local knowledge and expertise is critical as the US is the most mature market for us.”
The influx of new capital has weakened the cat marketplace overall and may have made that market less desirable but, Boornazian says, because of the relationships Aspen has built with customers and its consistency of approach, it was able to do well.
“The regional approach we have adopted is key—having local expertise on the ground. Fundamentally that philosophy will not change,” Boornazian says.
“In terms of new capital specifically, it is important in today’s market to have access to all forms of capital as there are certain products where new capital is most effective and others where traditional equity capital is more appropriate. The two need to work in tandem. We formed our asset management company, Aspen Capital Markets, in 2013 to enable us to bring all available solutions to our customers.”
He adds: “There are some headwinds coming in the re/insurance world but it is not something to press the panic button about. It is about being fleet of foot, agile and being able to adapt. Companies that can do this well will succeed in this market environment.”
Bespoke solutions, sensible margins
At Hiscox, the company remains “focused on partnering with the top tier US P&C insurance companies, ensuring that we provide bespoke solutions at sensible margins and best in class service to the broker community”.
Bevis Tetlow, head of North America and Caribbean underwriting for Hiscox Re, says: “The main change over the last five years is that the business we write is increasingly servicing other people’s risk appetites and capital in addition to our own.”
And unlike Hamilton, TMR and Aspen, Tetlow says: “We continue to operate out of our Bermuda and Lloyd’s platforms, which allow us to see the vast majority of the business in the US market.
“The US market is under pressure, but the majority of clients still see the certainty of a traditional market offering as core to their placements. We see opportunity by partnering with our clients, going beyond just providing x over y cover to deliver flexible products that provide them with a customised solution to their risk tolerance and capital needs.”
The increased competition on US property-cat is well documented, and Tetlow says: “We are working harder for less, amplified by the fact that a reduction in rate leads to a greater reduction in expected profit. As rates fall we need to bring value in other areas and prove to our clients that buying reinsurance isn’t just a commodity purchase.”
On new opportunities in the US, Tetlow adds: “We have had a healthcare team successfully writing business in Bermuda and Lloyd’s for five years now, headed by Ian Thompson. We have also recently expanded our team in Bermuda to write casualty and specialty classes.
“Even in the most challenging markets there are always subsets of profitable business if you are prepared to work hard to find it. A good example of this is the healthcare team’s new Solo Strike product which help protects healthcare institutions from targeted deadly weapon attacks by individuals.”
Is Bermuda still the solution?
Aspen, Hiscox, Hamilton and TMR were all asked: is Bermuda still a go-to market for US cedants trying to solve challenging risks?
Duperreault said: “It is still the place for capital. It is still where people will take their capital to put it in the insurance business.”
Hoshina said: “For the cat market, yes. For non-cat there are a lot of mid to small companies who like the US balance sheet. Bermuda has always been the market for cat. It has the environment, the cat underwriters are there, the cat market is there, it has been since 1990/91.”
Tetlow said: “Bermuda is increasingly the hub of choice for our
US-based clients. It is easy to get to and has the largest market share. A day trip from New York gives clients access to the many of the market leaders in our business.”
Boornazian said: “Absolutely, it is the trading platform for property catastrophe, it is the go-to marketplace. Bermuda is still the hub; it is established, well regulated and has many well rated companies with good underwriters who can provide solutions and technical expertise for clients. Bermuda has a very good reputation.”
Targeting the most important market
Offering a broker’s perspective on the importance of the US market to Bermuda’s re/insurers, Paul Markey, chairman of Aon Benfield, says getting the approach to targeting North America right is one of the most critical challenges facing any business serious about expansion.
“The question of Bermudian’s footprint in the US is a very important discussion. I personally think it is probably one of the most important topics facing Bermudian reinsurers because US business, full stop, is the largest and probably the most profitable marketplace in the world,” Markey says.
“However much they try and diversify their portfolios into other areas, the US is the biggest deal. Having robust strategies for either expanding your footprint or developing a footprint is a critical fact of life.”
He notes there are a number of ways in which companies can differentiate themselves in this very competitive market – he suggest one of the more successful plays can be through finding the right partnership.
“I think a partnership is potentially a good option. A start-up is almost impossible in today’s world so you either looking to partner, merge or acquire something. I think the greatest area of interest should be in the MGA/MGU environment, which is still such a large part of the US market.
“It’s a very hands on area, which is why Bermuda doesn’t have a great penetration from Bermuda but for those who can figure out ways of partnering effectively I think a MGA/MGU strategy offers opportunities when considering any external strategy.”
US insurance market, Hamilton, Hiscox, Aspen, Tokio Millennium Re