The promised land

12-01-2016

The promised land

The US market has been at the centre of the recent influx of alternative capacity into the industry, resulting in a turf war between traditional players and new investors. Why then are so many companies also actively targeting growth in North America? Bermuda:Re+ILS investigates.

It had (almost) become a truth universally acknowledged that a reinsurance company seeking growth should look to emerging markets and economies to achieve it. Indeed, most chief executives of the established reinsurance players cite China, India, other parts of Asia and Latin America when asked this tricky question.

More recently, however, a number of companies have stated that they see potential growth in the US market. These include a number of Bermuda companies and others from further afield.

On the surface of matters, this seems particularly surprising given the influx of alternative capacity into this market in recent years, making many parts more competitive than they have ever been. Rates are soft, competition fierce and there is the not insignificant matter of the state-based regulatory regime any newcomer would need to navigate.

Yet it should also be remembered that, despite its maturity, the US market is the biggest in the world. For all the competition there, it is big enough for opportunities also to exist—especially for companies that are either relative newcomers or which, for other reasons, simply do not have a US footprint to match their presence elsewhere in the world.

The promised land

One of these companies, which falls into the former category, is Hamilton Insurance Group and its Bermuda-based subsidiary Hamilton Re. The company is new, located in the perfect launch pad for the US market and its executives have deep connections and expertise in the market.
Formed in late 2013 with industry veteran Brian Duperreault at the helm, the company always stated it wanted a three-pronged strategy of establishing reinsurance operations on Bermuda, insurance operations in the US and establishing a presence in the Lloyd’s market.

To the relative surprise of Duperreault, the company has achieved all three things in its first 18 months. In the US market, in October 2014, it completed the acquisition of Valiant Insurance Company, a US-based admitted insurance company, and Valiant Specialty Insurance Company, a US-based surplus lines insurer, both from a subsidiary of TIG Insurance Company, giving it a presence in the US market under the brand Hamilton USA.

“We are thinking big and acting big when it comes to a diversified product range." Kathleen Reardon. 

The US market should suit Hamilton for another reason. The big unique selling point which the company has touted since its formation will be its world-class sophistication, thanks to the expertise of one of its backers, to process, analyse and make decisions based on its use of big data.
The information-rich US market is the perfect place to begin doing this. Duperreault says that company’s presence in the US market has allowed it to start rolling out its innovative take on how big data and analytics can be used to make better and more informed underwriting decisions more quickly.

The technology that enables it to do this has been operational since May and Hamilton USA is now using it for clients. “There are good early signs that this will make a big difference,” he says. “It gives us the ability to condense the amount of data we need to ease the burden on the client.
“The idea is that it allows us to assess risks in a different and more efficient way, which also means not having to torture the client with as many questions. It speeds the process to a decision.”

The company also plans to enter the US property and facultative insurance market in the first quarter of 2016.

Kathleen Reardon, the chief executive of Hamilton Re, says the move is part of its strategy to diversify and not rely on one channel for business. “We are thinking big and acting big when it comes to a diversified product range,” Reardon says.

For Sompo Canopius Re, the new reinsurer formed in September to manage reinsurance business previously written separately by Canopius and Sompo Japan Nipponkoa Insurance, the logic is that it sees opportunities in certain specific lines of business. It plans to hire teams of specialists to take advantage of where it sees these opportunities.

The company moved its registered headquarters to Zurich from Bermuda earlier this year but, perhaps paradoxically, it has also spoken of creating more jobs on Bermuda as its operations there and in relation to its US expansion plans grow.

Chairman Michael Watson says the company is planning to establish a new office and team in the US targeting a completely new business stream previously untapped by both Canopius and Sompo.

“We are looking to bring new people on board for a new class of business,” Watson says. “We want to increase scale there. Over the next 12 months two new underwriting teams will be coming on board and later this year there will be a new branch opening in the US. We are actively looking to develop the franchise.”

One of his target markets is accident and healthcare which, he says, has good potential for growth while he also wants to increase its specie business where historically the firm has been a modest player. Now it will seek a “more prominent position”.

“We have huge advantages through ownership—their financial strength will help us grow the business, although there is no pressure to go out and grow the business today. They are patient and take a long-term view,” Watson says.

Going global—via the US

Other companies are driven by a different motivation: raw ambition and a desire eventually to be a top 10 player globally in reinsurance in terms of size. To achieve this, any reinsurer would need a serious presence in the US market—first, if they are to be taken seriously by global cedants and second, because entering the market will offer them useful diversification away from their home markets.

“We will focus on the US market because property prices in the US are not as bad as those in emerging markets." K Sanath Kumar 

The newly Bermuda-domiciled Qatar Re has targeted growth in the North American casualty market as the driver that will continue to propel it towards its ambition of becoming a global top 10 “modern reinsurer”.

The company currently has no exposure in US casualty and only a small book of casualty business elsewhere. But this is set to change and the recently announced decision to domicile Qatar Re in Bermuda, with its close proximity to the US, will help make this a deliverable strategy.

Gunther Saacke, Qatar Re’s CEO, spoke at length about the company’s ambitions and strategy in the October issue of this publication. He said that Bermuda’s proximity to the US was a big factor in its decision to move its headquarters to the Island from the Qatar Financial Centre.
“The close proximity of Bermuda to the US market—the biggest and most important in the world—was most important for us. It will help us attract key personnel,” he said.

French reinsurer SCOR is a different animal again. Already a top five reinsurer—or tier 1 as its CEO Denis Kessler prefers to put it—the company is clearly global with a reach and capacity that is the envy of even the biggest players.

However, largely because of its history and headquarters in France, for all its global breadth, it is underweight in the US market. Victor Peignet, the chief executive of SCOR Global P&C, said at a press conference at the September Monte Carlo Rendez-Vous that he sees the company’s future success being based on its ability to adapt to the specific challenges of different markets.

While he cited China and India as topping its list of targets, noting the potential of these markets as insurance penetration grows and they open up, these were followed by the US. Peignet described SCOR’s very deliberate strategy whereby it has slowly and carefully targeted working with different tiers of US cedants. After initially working with specialty and surplus lines players, it has now graduated to targeting national US and US-based international insurers.
The rationale of a company such as GIC Re, which is also seeking growth in the US, is a mixture of those of Qatar Re and SCOR. It, too, has very ambitious plans to become a top tier global player. Its near-term plans for growth mean it will be extending its reach to the US and Latin American markets.

K Sanath Kumar, acting chairman and managing director, GIC Re, says the company plans to upscale its global business significantly.
“Today about 45 percent of our business comes from global operations and we need to scale that up in size, diversity and geography, which will include entering new segments,” he says.

“We will focus on the US market because property prices in the US are not as bad as those in emerging markets, and we will also look to Latin America. We are currently considering a group status in Brazil.”

All in all, for the first time for a long time, the US market is attracting the attention of new suitors, seeking riches and growth as they pursue wider ambitions of global growth. The changing reinsurance landscape is also creating the situation where new players are emerging and older players are becoming more ambitious against a backdrop of consolidation creating holes these new players will fill.

Whatever the reasons, and whatever these companies’ logic, the US market will become even more competitive again as a result of their attentions. It could also, perhaps, invigorate parts of a market in need of some innovation and a fresh approach. 

Hamilton Insurance Group, Hamilton Re, Kathleen Reardon, Sompo Canopius Re, K Sanath Kumar, GIC Re, Bermuda, North America

Bermuda Re