Investing in the future

28-11-2018

Investing in the future

iStock / nadia

Bermuda will play an increasingly important role in global risk transfer, and Aon has invested in its team on the Island on this basis, say Tony Fox and Matthias Meyenhofer of Aon’s Reinsurance Solutions business in Bermuda.

Bermuda will become increasingly influential in the way that big risks are managed and transferred in the future because of its unique combination of regulatory regime and talent—and the intersection it allows between capital and risk.

That is the view of Tony Fox, chairman, and Matthias Meyenhofer, chief executive, of Aon’s Reinsurance Solutions business in Bermuda. Both joined from Guy Carpenter, Fox in 2016 and Meyenhofer in September.

Fox says Aon has invested heavily in talent (it has hired two new executives in the past 12 months not including Meyenhofer) as the firm believes the importance of Bermuda as a risk transfer hub will only increase.

“We have enjoyed strong growth in the past few years and added a lot of strength to the team to support that,” Fox says.

“We believe we have the biggest operation here with the deepest expertise. We want to offer the best service to the market; with consolidation ongoing many carriers will have more complex needs and want to work with a broker with a broader reach, which is what we offer.”

He explains that the company has added a lot of capabilities in specialty lines such as cyber, terrorism, mortgage risks and agriculture. He also sees opportunities emerging in life reinsurance going forward. He believes that Bermuda is increasingly being viewed as the destination of choice for placing such risks because of the expertise inherent on the Island and also its carriers’ ability to participate with very large lines.

Fox accepts that this is in stark contrast to the perception of the Island a few years ago when some commentators reported that its influence seemed to be waning. He says that securing Solvency II equivalence has helped boost its status along with the fact that it has become the undisputed domicile of choice for insurance-linked securities (ILS) investors and all forms of alternative capacity looking to enter the market.

New risks

Meyenhofer agrees that Bermuda has increasingly solidified its position as a domicile able to deal with relatively new and emerging risks. He says its deep talent and flexibility have been key to this. This dynamic contrasts somewhat with the Lloyd’s market where syndicates must adhere strictly to pre-agreed business plans and such flexibility is harder to achieve.

“As brokers we simply follow the needs of our clients. 
Long gone are the days of Bermuda’s being predominantly a property-cat writer,” he says. “The whole island is stepping up its offering and we want to be at the heart of that.”

Meyenhofer adds that the ease with which different types of risk transfer vehicles from captives to ILS funds can be formed is also important. “The talent wraps around all that, and talent attracts talent,” he says.

Fox adds that it can easily be forgotten that some of the most cutting-edge risk models and research are developed on Bermuda.

“A lot of the bigger carriers here have incredible expertise,” he says. “From hydrologists to meteorologists to cyber experts—so many of the risks we are getting a handle on as an industry are developed here. Bermuda has become known for solving complex problems.”

While Meyenhofer foresees growth across the board going forward, he believes this will be increasingly driven by speciality lines in addition to the property-cat business so associated with Bermuda.

Fox says in the absence of another big loss, he does not expect any big surprises on rates in the upcoming renewals. He adds that “loss creep” might have an effect on the market, whereby initial loss estimates from the 2017 events have been revised upwards—quite significantly in some cases.

“They have gone up substantially for some carriers and that could have a bearing on negotiations,” he says.

Consensus for the Bermuda market is for rates to be flat to down slightly in some areas at renewals, with little potential for rate increase unless there is another big event. In addition, capital supply is plentiful, and some of the newly consolidated entities 
may retain more risk and perhaps purchase less limit, which would place additional pressure on rates as capacity competes to write business.

Fox does not believe the cyclical nature of the market has disappeared just yet.

“It has not disappeared, but perhaps there will be fewer severe peaks and troughs compared with what we have seen in the past,” 
he says.

“There will be a less steep bell curve, and that is partly because capital moves around more quickly, investors are smarter and there is greater access to information.

“But whatever happens, we believe Bermuda will remain a key market for reinsurance buyers.”

Bermuda, Aon Reinsurance Solutions, Tony Fox, Matthias Meyenhofer

Bermuda Re