1 October 2010Re/insurance

Amlin Bermuda's European Connection

Amlin Bermuda may well have spent less time in the spotlight of publicity than many of its Bermuda peers, but it has consistently delivered against its strategic plan. As of December 31, 2009, the business was capitalised at $1.6 billion. Gross premium written for year end 2009 was $628.3 million, generating a net income of $391.9 million.

The history and group structure

Amlin Bermuda is a specialist reinsurance underwriting company, wholly owned by Amlin Plc, a quoted company on the London Stock Exchange. Amlin is a leading insurance and reinsurance group organised into five divisions: Amlin London, Amlin UK, Amlin France, Amlin AG (of which Amlin Bermuda is a branch) and Amlin Corporate Insurance. The group writes a diverse portfolio of more than 30 classes of business. At December 31, 2009, total shareholders’ equity was £1.6 billion. Gross premium written for the year ending December 31, 2009 was £1,543.9 million, generating a net income of £454.8 million.

Amlin’s Syndicate 2001 was formed from syndicates with a 100- year track record of successful underwriting in the Lloyd’s market. It remains one of the largest and most diverse in terms of business lines and number of risks written, and is rated ‘A+’ (Superior) by A.M. Best, higher than any other Lloyd’s syndicate and indeed the market itself.

Amlin Bermuda joined the Class of 2005 in October of that year as a start-up, initially capitalised at $1 billion and licensed as a Class 4 insurance company with the Bermuda Monetary Authority. We recognised that we were joining a well-established and successful Bermuda insurance market that plays a vital role in the global economy. Our aim was that Amlin Bermuda should bring a new perspective to the local market, in addition to providing much needed extra capacity for reinsurance business following the significant hurricane losses of 2005.

At the launch of Amlin Bermuda, Charles Philipps, chief executive officer of Amlin Plc commented: “The formation of Amlin Bermuda will fulfil our strategic objective of establishing a strong underwriting platform outside the Lloyd’s market, which will both support and complement the activities of Syndicate 2001. We believe that this is an opportune time to make this move, in view of the significant rating increases that are expected as a result of the unprecedented windstorm losses incurred in 2005 and 2004.”

Delivering on the plan

October 2010 sees Amlin Bermuda celebrate its fifth anniversary. A strong underwriting platform and support operation has been built, delivering highly credible results. Bermuda has proved to be a very favourable jurisdiction in which to develop Amlin’s reinsurance portfolio outside the Lloyd’s market. We have expanded the Amlin Bermuda team to some 35 staff and continue our commitment to providing a challenging, but supportive, environment for all. This staff base will continue to evolve as new business opportunities are developed. In line with the parent company’s overall strategy, Amlin Bermuda continues to contribute to shareholder value by aiming to achieve profitable trading throughout the insurance cycle, and contributing to the group financial target of at least 15 percent cross-cycle return on equity.

A key aspect of Amlin Bermuda’s initial and continued success has been the decision to leverage pre-existing Amlin relationships with London brokers, which remain the principal means of distribution for Amlin Bermuda’s portfolio of business. This strategy initially enabled us to attract high-quality, seasoned business, and the subsequent growth in both income and profits during our first five years of operation is due in no small part to the strong support we have received from these brokers.

Following changes to UK tax rules in 2009, Amlin Bermuda began paying dividends to the parent company. These substantial cash flows are contributing to the Amlin group’s ability to grow the business both organically and by acquisition. The acquisition of European insurance business, Amlin Corporate Insurance in July 2009, was largely funded from the Amlin group’s internal resources.

The current underwriting strategy

Our highly experienced team applies Amlin’s successful underwriting strategies while developing a well-spread, geographically diverse, global property reinsurance book. The Amlin Bermuda underwriting operation is made up of three underwriting teams:

• North American catastrophe and per risk excess of loss treaty reinsurance

• International catastrophe and per risk excess of loss treaty reinsurance

• Pro-rata and specialty lines treaty reinsurance.

Amlin Bermuda obtains business from two distinct sources—the external reinsurance sources listed above represents around 60 percent of the book, with the remainder comprising internal reinsurance. The internal reinsurance of Amlin Syndicate 2001 provides a balanced risk profile to the overall book. This is in line with the group philosophy of delivering high-quality, low-volatility results.

We remain committed to providing specialist risk coverage to our global client base via the distribution system of their choice.

Key developments— European expansion

Earlier this year, Amlin announced the formation of a new European reinsurance platform based in Zurich, Switzerland. Amlin aims to establish long-term partnerships with companies operating in this sector, which will provide the group with access to European reinsurance business that does not typically flow into the London and Bermuda marketplaces. Amlin intends to redomicile Amlin Bermuda from Bermuda to Zurich. The new company will be named Amlin AG and the existing operations of Amlin Bermuda will become a Bermuda-based branch of Amlin AG.

"Bermuda has proved to be a very favourable jurisdiction in which to develop Amlin's reinsurance portfolio outside the Lloyd's market."

Amlin AG’s Zurich-based underwriting unit (to trade as Amlin Re Europe) will be staffed by a core team recruited from Swiss Re, headed by Philippe Regazzoni, who will become chief executive officer of Amlin AG.The business written in Zurich will further diversify the group’s overall reinsurance portfolio both geographically and by class of business. This will in turn help reduce portfolio volatility and make more efficient use of the existing capital base and financial strength. The Zurich-based business will focus mainly on non-life treaty reinsurance for European insurance companies.

Mr. Regazzoni added: “We are excited by the prospect of building a third significant reinsurance business within the Amlin Group and helping to reinforce Amlin’s position and brand as a leading international reinsurer. We believe that a focused and well-capitalised European reinsurer will provide a strong partner for European brokers and clients.”

The redomiciling of Amlin Bermuda is expected to have minimal impact on the day-to-day activities of the Bermuda operation. The Bermuda operation will be backed by the same capital and hold the same ratings as before, and will remain fully committed to the Bermuda jurisdiction. We will continue to develop our business platform on the Island and to pursue opportunities for profitable growth.

Key developments—the regulatory environment and Solvency II

The insurance world is about to undergo some significant changes in the realms of regulation. The implementation of Solvency II in Europe is fast approaching and the Amlin group is readying itself for this new environment. It has embraced the introduction of Solvency II with a view that it is an opportunity to realise significant commercial benefits by further enhancing the group’s risk management and capital efficiency.

Amlin Bermuda is an integral part of this development within the group. The Bermuda Monetary Authority is continuing to enhance its reputation with a view to obtaining regulatory equivalence under Solvency II. This would be a major milestone in Bermuda’s regulatory evolution, given the strong connection between Bermudian and European reinsurers.

The future

Amlin Bermuda has established itself as a strategically important component of the Amlin group. This has been further ratified by the rating agencies’ positive reactions to our development in Europe. We believe that two major factors have contributed to this viewpoint:

• The company commenced a dividend stream to Amlin Plc during 2009, and

• The operation is now sufficiently mature to enable the establishment of Amlin’s third reinsurance platform based in Zurich.

Late 2010 will see Amlin Bermuda operating as a Bermuda branch of Amlin AG, a Swiss-domiciled reinsurance company. We anticipate that this will be the start of another profitable chapter in Amlin Bermuda’s short, but successful, history.

Stuart MacKellar is the managing director of Amlin Bermuda. He can be contacted at: