Bermuda Start-Ups Emphasize Quality

Bermuda Correspondent

With the new Bermuda start-up companiesvowing to stay around for the long term, their game plan appears toinvolve writing quality business, rather than just accruing premiumvolume.

“A lot of people have not written business as fast as they hadexpected, but on the other hand, they are being very choosy, verypicky about what they underwrite,” said Graham Collis, a partner inConyers Dill & Pearman, one of Bermudas two largest law firms.“My impression is that they are not in a great hurry to utilize alltheir capital, but are looking very carefully at what is outthere.”

Privately, many of Bermudas insurers and reinsurers confirm thatthe desire for strong underwriting results has put pressure on thereinsurers to participate in the better-quality deals.

Speaking on condition of anonymity, one chief executive officerof a Bermuda start-up said: “Deals are either oversubscribed two orthree times, or attract hardly any interest whatsoever.

“The feeling I get from my colleagues is that, with interestrates where they are, people dare not underperform on theunderwriting side. There is no room for grabbing business at anyprice. Its either a well-priced transaction, or no transaction,”the chief executive said.

Between the end of September 2001 and early 2002, some $17billion was raised for, or promised to, the Bermuda market in newcapital. Eleven companies began life with half a billion dollars ormore in capital, and the major Bermuda companies in existencebefore Sept. 11, 2001, beefed up their surplus to cover anticipatedclaims and the hard market expected to follow the most expensiveinsured catastrophe in history.

The existing companies intention was to add capital inestablished lines, which, in Bermuda, means predominantlyreinsurance. Some of the new companies opted to concentrate on asingle area, often property catastrophe reinsurance, but manydecided to form broad-based insurance and reinsuranceenterprises.

American International Group Inc., Chubb Corp., and GS CapitalPartners 2000 LP, an investment fund managed by Goldman Sachs &Co., formed Allied World Assurance Company Ltd. late last year towrite “worldwide commercial property and casualty insurance andreinsurance, property catastrophe treaty reinsurance, as well ascertain specialty lines,” a company press release said, lastNovember.

“The business is developing as we had hoped,” Michael Morrison,AWACs president and chief executive officer, said in aninterview.

AWAC currently offers primary property coverage for commercialreal estate accounts, communication and energy-related risks, heavymanufacturing and inland marine, and municipal and institutionalexposures. On the casualty side, it writes directors and officers,energy, excess general, product liability, and others.

The company has also entered the life reinsurance market forworking level and catastrophe portfolios. AWAC also writes propertycatastrophe treaty reinsurance through an exclusive agencyagreement with IPCRe Underwriting Services Limited, offering up to$12.5 million per program.

“AWAC is a diversified insurance and reinsurance company. As thegeneral capacity shortage continues, our ability to provide amarket has been welcomed,” Mr. Morrison added.

In July 2002, AWAC acquired, through its Irish-residentsubsidiary, two companies–Commercial Underwriters Insurance Companyand Newmarket Underwriters Insurance Company–from Swiss ReinsuranceAmerican Corporation. The two companies are authorized to writeexcess and surplus lines insurance in 48 US states.

In a press release, Mr. Morrison commented: “Ownership of thesecompanies will give us direct access into the all-important U.S.market, where there is significant unfilled demand for excess andsurplus lines insurance from a highly rated, well-capitalizedinsurer such as Allied World. This is a major step in our growthinto a significant global insurance company.”

For the six months ended June 30, 2002, gross premiums writtenby AWAC were $405.2 million, with a combined ratio of 87.7 on netearned premiums of $99.6 million

In the same period, AXIS Specialty Limited, another majorBermuda start-up sponsored by Trident II, L.P., a private equityfund managed by MMC Capital, private equity funds managed byJPMorgan Partners, Thomas H. Lee Partners, The Blackstone Group andCredit Suisse First Boston, wrote gross premiums of $526.4 million,with a combined ratio of 87.7 on net earned premiums of $150.1million.

Another Bermuda start-up, Montpelier Re, was financed withapproximately $850 million of common equity, led by founders WhiteMountains Insurance Group and Benfield Group. Montpelier reportedgross premiums of $340 million during the six months ended June 30,2002, and a combined ratio of 72 on net earned premiums of $118million during the period.

Endurance Specialty Ltd., founded in Bermuda by Aon Corporation,Zurich Financial Services and its affiliates, Capital Z FinancialServices Fund II, Thomas H. Lee Partners, Texas Pacific Group andPerry Capital, has also reported getting off to a flying start, ashas Arch Reinsurance Ltd., founded with capital from the ArchCapital Group, Warburg Pincus and Hellman & Friedman. BothEndurance and Arch Re are multi-line insurance and reinsurancecompanies.

Endurance had a combined ratio of 82 percent for the six monthsended June 30 on net earned premiums of $92.8 million. Arch had acombined ratio of 91.3 (on a statutory basis) or 94 (on a GAAPbasis) and net earned premiums of $503.7 million.

Dwight Evans, president of Arch Re, says that it is notnecessarily his companys intention to utilize all its capital. “Wealways like to keep a portion of our capital unused, so that whenbad things happen, we are around to participate in an ongoingmarket, which is probably greatly improved, after some bad events,”he said in an interview.

In December 2001, IPC Holdings, in a move mirrored by all themajor existing Bermuda companies, raised new capital– in IPCs case$547 million.

“We raised the [new] capital in response to clients asking usfor it. We are deploying it pretty much on track with what weexpected at the time we raised it,” said Jim Bryce, president andchief executive officer, in an interview.

“I am sure that as this year continues, there will be plenty ofopportunities for all of us,” he said, noting that the question isnot so much who is adding business, but rather, who is no longerwriting business.

“A lot of capital left the industry in 2001, and a lot of peopleare continuing to pack their bags and leave the marketplace. Insome cases, you hear of a new company every day that is out of theproperty reinsurance business,” Mr. Bryce continued.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, September 2, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.