Playing to our strengths
I was born and raised in Bermuda. I started my insurance career at AIG in New York. From 1993 when the reinsurance industry in Bermuda really took off, I began keeping a close eye on the Bermuda reinsurance industry, seeing the Class of ’92 growing and thriving in Bermuda.
At the time I was working in primary casualty business but by 2005 I was back in Bermuda, working for XL in property catastrophe business.
I appreciated the time I spent in the US. The Bermuda reinsurance market by its nature lends itself to infrequent, but extremely severe events. Those are very capital-intensive problems, but my ability to get closer to the source of the underlying risk, which I had to do in the US, gave me a stronger understanding for what happens in Bermuda.
The Bermuda environment can be challenging because you are dealing with extremely remote and infrequent events, so I encourage all the younger people I meet to spend some time overseas and try to get closer to the source of the business.
Year after year our goal at XL is to deliver a healthy underwriting profit to our shareholders. We focus strongly on underwriting. We’ve been in business in Bermuda for 22 years now and around 60 percent of our business is from clients that we have traded with continuously for 22 years, so our first priority is to continue to provide a lot of focus and attention to our core trading partners.
We also focus on continuing to be innovative: rather than providing the product that we want to sell, we listen to our customers and address their needs, and we do that in the context of a prudent underwriting framework.
The challenging property catastrophe market and influx of non-traditional capacity are having some interesting effects. A lot of people who used to make their living exclusively or predominantly in the property catastrophe reinsurance market are now looking at other areas and other lines of business in reinsurance. As a result we’re seeing additional pressure on lines of business that have been fairly competitive and offered relatively thin margins for years.
As an industry I believe we are going to be focusing on developing new opportunities. We need to look at the emerging risks that buyers of insurance and reinsurance are faced with—that’s where the big opportunity is for us. The demand for our traditional products is growing relatively slowly in our developed markets; in non-developed markets or emerging markets it’s growing more quickly, but from a relatively small base.
Cyber is continuously cited as one of the large risk challenges that people face, and the recent news around some of the large cyber breaches shows the financial impact that can have for companies. Another one is intangible assets. How to protect these is a huge worry for a lot of CFOs, and that creates a huge opportunity.
Reinsurers can play an important role in supporting new product development. There is a lot of risk involved for primary insurers when they develop a new product and a reinsurer, as a partner in the R&D phase, can provide the capacity necessary to provide a meaningful solution.
The reinsurance business is very different from how it was five years ago. The source of the capital in our business is changing, the regulatory environment is changing rapidly and change is accelerating. That creates a lot of challenges and also opportunities. The opportunity for us as an industry is to provide quick, effective solutions to emerging problems.
Faced with the need to innovate, Bermudian reinsurers have certain advantages. The regulatory environment we have in Bermuda is flexible and adaptable, yet it’s robust and it gives buyers a sense of stability and confidence. The regulatory environment is a very powerful tool for us to provide innovative solutions, innovative structures and different capital structures quickly and effectively.
The Bermuda reinsurance market has a history of innovation. If you go back to the reinsurers that formed post-Andrew, they were the first to really embrace the use of catastrophe models. If you look further back to the formation of XL and ACE, we developed an entirely new liability form to tackle what was essentially the complete absence of any casualty capacity in the market.
So Bermuda has a history of providing innovative solutions, and a lot of the talent that exists currently in Bermuda has that in their DNA. Now we need to continue to invest in and develop that local talent and make sure we continue to attract the best and brightest in the industry to Bermuda.