1 September 2012Re/insurance

A bitter-sweet memory: Hurricane Andrew

Hurricane Andrew made landfall in Florida on August 24, 1992 as a Category 5 storm. It became the costliest natural catastrophe in history. Claiming 65 lives and $26 billion (in 1992 dollars), Andrew remains one of the most destructive events in modern history.

In a sense, the regiment of re/insurance companies that has marched into (and occasionally out of) Bermuda since 1993 have all been Andrew’s children. Its clouds had a silver lining for the Island.

Property catastrophe reinsurance essentially evaporated worldwide after the storm, offering an opportunity that Marsh’s Robert Clements and Robert Newhouse, Jr. capitalised on.

By the spring of 1993, eight new property cat reinsurers had formed in Bermuda, bringing $4 billion in clean capital and establishing the Bermuda market we know today. Before Andrew, Bermuda had been a captive insurance market; today it is a global re/insurance market providing coverage in most lines.

Twenty years after the storm, Bermuda is home to half a trillion dollars of re/insurance capital and an unmatched pool of intellectual expertise. The Island has made itself a byword for well-regulated, often creative, international re/insurance.

Florida took the brunt of Hurricane Andrew, but it was Bermuda that benefi ted subsequently. The events of 9/11 resulted in the largest movement of capital in the history of mankind:almost $30 billion marshalled and deployed within four months, two-thirds of it Bermuda-bound, cementing the Island’s credibility.

Events widely reported in the country in which they take place may not garner much coverage elsewhere. Bermuda’s unique role in the global allocation of capital made few headlines outside the Island.

Editors in other leading insurance markets showed little interest in reporting that their countries’ insurance sectors were second best. A few journalists did their best to tell the tale, but no-one was terribly interested outside Bermuda.

The Bermuda government saw and took a golden opportunity. An island whose main source of income—tourism—had fallen consistently since 1981 had the wisdom to see the possibility that re/insurance opened up. Blueprints for a genuinely new Bermuda changed the economic outlook of the Island and its competitors around the world, built the City of Hamilton and its suburbs and brought untold wealth to its citizens. Credit where it’s due.