Bermuda is well placed to tackle the challenges of new risks and alternative capital in 2015, Kathleen Reardon, the chief executive of Hamilton Re, speaking at a luncheon for members of the Bermuda Insurance Institute (BII).
Reardon commended the work of the BBI saying that the organisation provides opportunities for re/insurance professionals to gain qualifications and to be competitive.
“This is good for us professionally, and it’s good for the Bermuda market,” she said. “Providing an expert workforce to companies doing business on the Island is part of what keeps us top of mind as a preferred jurisdiction.”
She spoke of the relatively benign cat season, low interest rates and the impact of alternative capital on reinsurers – as well as new risks.
“We’re facing catastrophic new risks. Cyber hacking, Ebola, super storms – for an industry that sets prices based on past history, how do we assess the unknown risks of the future?” she said.
“All of this puts incredible pressure on our underwriters to maintain underwriting discipline, our CFOs to figure out ways to improve portfolio returns, and our executive management to achieve profitable growth.”
Reardon also said that the industry could appear in a “pretty dire” state, but said that she was “excited” about the possible developments ahead.
“We’re going to have to rethink some of the ways we do business. And we’re going to have to be quick to respond to changing market dynamics,” she said. “But Bermuda’s reputation as a major insurance and reinsurance hub was forged on the back of creativity and innovation, so I have every confidence that we’ll rise to the occasion.”
According to Reardon, 35 percent of premiums written is used to fund the distribution of insurance products and services, which she says is clearly far too high.
“We have to find ways to be more efficient,” she explained. “We’re ending this year with a consensus that if our industry doesn’t figure out how to do this, other industries will do it for us.
“A few months ago, Aon Benfield reported that the amount of alternative capital in the reinsurance marketplace was $59 billion. That’s an increase of 18 percent in the first six months of this year. In contrast, traditional capital increased just 6 percent over the same time period. So alternative capital providers are far outpacing traditional reinsurers in producing excess capital,” she said.
“In order for reinsurers to be relevant, their capital has to be as least as effective as the capital that cedants can get from other sources.”
She also spoke about the challenges of cyber risk.
“My boss, Brian Duperreault, says that cyber risk has all the hallmarks of a war. Brian says the industry has never been able to cover war as a risk, and perhaps cyber falls into that category,” she said.
However, despite these challenges, Reardon remained optimistic.
“The insurance industry is like a roller coaster. There will always be highs and lows, and the main thing is to hold on and enjoy the ride. And there are signs that many of us in the industry are doing just that,” she said.
“In spite of continued pressure on terms and conditions, and in spite of shrinking margins, companies are maintaining their underwriting discipline. They’re thinking through their exposures, and rejecting unreasonable requests. They’re being very conscientious about expanding coverage.
“These are scary, but exhilarating, times. We don’t know what next year will bring, but I know we have the talent, strength and vision in the Bermuda market to face whatever it is.”
Hamilton Re, Kathleen Reardon, Reinsurance, BII