1 February 2011Re/insurance

Mark Byrne: a wise head

Byrne’s name is synonymous with Bermuda and reinsurance, his resume reading like a who’s who of leading firms from the Island and beyond—from Gen Re and Terra Nova, to White Mountains and Flagstone Re—Byrne has played a key part in developing the industry’s reach and potential, particularly in Bermuda. Having recently left Flagstone Re, where he was chairman, Byrne’s most recent venture is Haverford (Bermuda), a Class 3 reinsurer. But his ambitions don’t end there, with Byrne indicating that he is keen to develop the company into a Class 4 reinsurer. And if Byrne’s pedigree is anything to go by, the Island can expect to welcome another big player with an established industry veteran at its helm.

What personal qualities do you think are needed to lead a global reinsurance company, and particularly one with a Bermuda focus?

Mostly the same qualities good leaders exhibit in any company: integrity, energy and a focus beyond the next quarter’s or year’s results. I think Bermuda companies have a special challenge in that they really have to be run with a global approach; Bermuda is simply too expensive to concentrate 100 percent of your resources here, and most of the growth opportunities in our industry are very far away geographically. I also think it has become important to have good corporate finance and capital market skills in the senior leadership; capital now arrives in these companies by many means, not just by issuing common equity.

Considering your depth of experience, if you could extend three pieces of advice to someone taking up the helm of a reinsurance company, what would they be?

1. The loss ratio matters more than the expense ratio in reinsurance. Focus on having the very best team of underwriters, modellers and actuaries that you can identify.

2. Asia matters a lot. Even though many reinsurers are struggling to find profitable business there, non-Japan Asia will represent the largest economic region in the world a few years from now. Further, you can’t just set up shop on Monday in China and expect to do business on Tuesday. So every company needs a long-term Asia strategy.

3. Make sure your compensation system aligns the interests of people taking risk, with the company’s interests. That favours equity compensation over, for example, profit commissions.

What are the major pressures facing the CEOs of reinsurance companies in Bermuda at the moment and how can they best deal with such concerns?

One that I keep hearing about is the lacklustre performance of the share price of the public companies, resulting in the impossibility of getting public for the private companies. This seems to have led to some pretty restless owners.

I understand that you have established a new Class 3 P&C reinsurer in Bermuda—Haverford. What are your ambitions for the company and how are you going to be able to differentiate your position in a market characterised by excess capital?

We intend for Haverford to be a Class 4 company in due course. Our intention is to have a company that has a very dynamic level of underwriting capital, using a combination of redeemable and common equity to achieve this. We expect to start underwriting business in the second half of 2011.

When considering establishing a new company in the market, what are the key considerations company heads need to bear in mind?

"Asia matters a lot. Even though many reinsurers are struggling to find profitable business there, non-Japan Asia will represent the largest economic region in the world a few years from now."

Right now, with existing public share prices mostly at well below book value, I would view the challenge of raising straight common equity for a new company as next to impossible. I do think a company with a significant portion of its capital in redeemable sidecar form can be created now. Part of the reason for the larger investor appetite for alternatives is that—to my knowledge—all of the sidecars launched since 2005 have delivered stronger returns than any of the common equity investments available, whether in the Class of 2005 or earlier public companies.

What do you look for when you are looking to establish and develop your team, particularly when considering a new company?

Obviously we seek smart, educated, experienced people, but a sense of partnership is important too. One way to know that someone has the right attitude to partnership is if they embrace the idea of equitylinked compensation.

Could another major cat event such as Katrina or September 11 herald a new class of business to Bermuda? Or would the mass of Bermuda re/insurers come up against physical limits on the Island and competitive limits in the form of market overcapitalisation?

I think a major event could trigger a firmer market and the arrival of fresh capital into Bermuda. But I think it’s more likely to show up in sidecars, cat bonds and funds than in many more new start-ups. I do however believe Bermuda has capacity for a few more companies, as for the last few years, companies have on the whole been shrinking in Bermuda. Judging by commercial and residential rents, there is now a bit of room on the Island.

How can Bermuda look to maintain its position as a leading domicile and have those that have mimicked the Island’s strengths weakened its position moving forward? Is the ‘Bermuda model’ still as attractive as it was?

Bermuda has several key strengths that give it a sustainable advantage over competing jurisdictions. The BMA is one of them, and I understand Bermuda is well on the way to being one of the first Solvency II equivalent regimes, which will offer considerable advantage to Bermuda reinsurers versus other domiciles. The existing large base of business is another key strength, and obviously the tax rates are attractive.

I’ve advocated for a while now that Bermuda should consider the creation of an insurance exchange along the Lloyd’s model. This would have Bermuda’s fiscal advantage, plus the large base of business and talent on the Island, as well as Solvency II equivalence. As you know, New York State is considering (re)creating an exchange, but Bermuda would have the aforementioned advantages over New York. This idea is probably not popular with the firms it would be competing with— i.e. existing Bermuda reinsurers—but it would be good for Bermuda.