Bermuda Start-Ups Emphasize Quality

Bermuda Correspondent

With the new Bermuda start-up companies vowing to stay around for the long term, their game plan appears to involve writing quality business, rather than just accruing premium volume.

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

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

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

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

Between the end of September 2001 and early 2002, some $17 billion was raised for, or promised to, the Bermuda market in new capital. Eleven companies began life with half a billion dollars or more in capital, and the major Bermuda companies in existence before Sept. 11, 2001, beefed up their surplus to cover anticipated claims and the hard market expected to follow the most expensive insured catastrophe in history.

The existing companies intention was to add capital in established lines, which, in Bermuda, means predominantly reinsurance. Some of the new companies opted to concentrate on a single area, often property catastrophe reinsurance, but many decided to form broad-based insurance and reinsurance enterprises.

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

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

AWAC currently offers primary property coverage for commercial real estate accounts, communication and energy-related risks, heavy manufacturing and inland marine, and municipal and institutional exposures. 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 for working level and catastrophe portfolios. AWAC also writes property catastrophe treaty reinsurance through an exclusive agency agreement with IPCRe Underwriting Services Limited, offering up to $12.5 million per program.

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

In July 2002, AWAC acquired, through its Irish-resident subsidiary, two companies–Commercial Underwriters Insurance Company and Newmarket Underwriters Insurance Company–from Swiss Reinsurance American Corporation. The two companies are authorized to write excess and surplus lines insurance in 48 US states.

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

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

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

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

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

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

Dwight Evans, president of Arch Re, says that it is not necessarily his companys intention to utilize all its capital. “We always like to keep a portion of our capital unused, so that when bad things happen, we are around to participate in an ongoing market, 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 the major existing Bermuda companies, raised new capital– in IPCs case $547 million.

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

“I am sure that as this year continues, there will be plenty of opportunities for all of us,” he said, noting that the question is not so much who is adding business, but rather, who is no longer writing business.

“A lot of capital left the industry in 2001, and a lot of people are continuing to pack their bags and leave the marketplace. In some cases, you hear of a new company every day that is out of the property 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Bermuda Start-Ups Emphasize Quality

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