Many reinsurers are not achieving cost of capital: AIG Re’s Schaper
The question whether there is “enough money in the system to pay for all of that” is an important issue that needs to be addressed, Chris Schaper, CEO of AIG Re, told a panel discussion at the Bermuda Risk Summit, titled ‘The Bermuda Angle: Global CEO market view and strategic lens’.
“You get a sense for how markets are trading right now in terms of book value and most companies are at or below book value trade in the market. When you think about cost of capital, many companies are not achieving their cost of capital. If you look at expense ratios, even though rates are rising, many companies have ratios that are higher; not lower,” Schaper said.
“Then if you look at rates and growth, it’s primarily from rate movement and not from the expansion of new lines of business and new coverage areas, and so the protection gap has actually grown quite substantially. There’s a lot to consider and as much as Bermuda has contributed to try and solve a number of these issues, there is a large number of issues in front of us that we really need to proactively think about.
“The upside is that there’s so much change taking place that it doesn’t matter what part of this business that you’re in because everything is under significant change – the insurance industry, the reinsurance industry, whether you’re a live company or a legacy-based company; if you’re an ILS; if you’re in the MGA space. That creates a lot of interesting areas for us all to engage in collectively. We need to think about the value propositions of the business models that we all bring to the table.
“The reinsurance business model is very strong: We do a lot with not too many people. The business model of Bermuda – the connectivity between the regulatory side and the government with our own businesses is a very important aspect and is very unique in our industry, and it gives us the opportunity to actually capitalize on those changes that are in front of us.”
Megan Thomas, CEO, Hamilton Re, highlighted the resilience of the Bermuda market.
“We’re obviously named after the capital of Bermuda, so definitely a Bermuda-focused company that hasn’t been expanding outwards globally. We’ve done property cat well and excess casualty well. I think the market’s really doing now to help the resilience going forward is that we are diversifying into other lines of business. We’ve become more of a casualty reinsurance space; we’ve become more of a specialty reinsurance space.
“There are five times as many specialty reinsurers than there was here a few years ago and with that Bermuda has traditionally been a very robust market, it’s now becoming an even broader market and I think that’s particularly supportive of and reflective of the environment we face here with the dealings with the regulator.
“We have an easy way of doing business, we can pivot easily, we have the ability to provide different rates for the way that we want to do business here is very flexible. We’re not married to a certain business plan, thresholds; the capital can come here easily; we’ve got all aspects here – we’ve got insurance, reinsurance, retro, runoff, life, P&C; it’s extremely robust.
“Over the Covid time over the last two years, Bermuda had the opportunity to actually continue to transact business locally, in-person, with a number of brokers that are established here. We’ve got a lot of our insurance, reinsurance and retro clients do business with each other and so that marketplace is still very vibrant even though people weren’t able to travel here. Bermuda has such unique characteristics about it and I think we’re really in a position to shine.”
John Huff, CEO of the Association of Bermuda Insurers & Reinsurers (ABIR), added that this “passion for the Bermuda market” comes not only from CEOs, ABIR and the Bermuda Development Agency. “You’re also seeing it in the investor community and so, in the last 24 months, we’ve seen a lot of sophisticated capital coming to this market.”
The industry has not only coped over the last two years, but has also taken care of Bermuda itself during the pandemic, said Marc Grandisson, CEO of Arch Capital Group and the chair of ABIR.
“As we all collectively face the challenges, Bermuda is thriving. We went through pretty lengthy softer conditions and, being resilient the way we are in Bermuda, we came out of this and new companies are being formed, and we have growth and a positive perspective on what we can do in the market. We are stepping up to the plate in providing more coverage - at the right price, as you’d expect - and can shine and do more for the world. The ABIR membership is solid; we have more members than we did four or five years ago.”
Referring to Bermudian Premier David Burt’s comments at the start of the summit, about the industry’s contribution to the island’s wider community, Grandisson said: “The Premier mentioned charitable things done during the pandemic, and we do these things all the time because we’re very cognisant of the fact that we live in this ecosystem, a closely knit community, and it’s important that we’re taking care of each other on Bermuda as a whole island. It’s a precious place and we want to make sure we maintain it. ABIR is also helping Bermuda College develop more programmes and we [ABIR] have our internship programme because we’ve known for a long time that we need to bring young minds into this industry.”
