1993 Bermuda Cat Reinsurers Celebrate 1stDecade

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Bermuda Correspondent

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A decade after eight reinsurance companies set up to meet thevoid in property-catastrophe capacity after Hurricane Andrewthemost costly natural catastrophe to hit insurance and reinsurancemarketsonly three remain standing as independent operations.

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Those three, RenaissanceRe, PartnerRe and IPCRe, launched andquickly built strong franchises on the back of hard marketconditions in the property-catastrophe sector following Andrew'sscourge of the Southeast seaboard in August 1992, which racked upan insured loss of $15.5 billion.

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And what became of the other five? Mid-Ocean Re, Global CapitalRe, Cat Ltd., Tempest Re and LaSalle Re were all eventuallyacquired by other insurers. In fact, LaSalle is now part ofEndurance Specialty, one of the reinsurers set up in the aftermathof the post-Sept. 11 capacity crisis.

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LaSalle was originally acquired in 1999 by Bermuda-basedTrenwick, which found itself in financial trouble last year andsold off LaSalles in-force business to Endurance.

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Both Hurricane Andrew and Sept. 11 precipitated capacity crises,and since Bermuda facilitates the quick formation of companies inresponse, the “class of 1993″ and the “class of 2001″ both chosethe Island as their campus.

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The first of the group of eight cat companies to form inresponse to the Hurricane Andrew capacity crunch was Mid-Ocean Rewith its incorporation in November 1992.

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By the time the second cat companyRenaissanceRecame online inJune 1993, Mid-Ocean had already used up its capacity and was outraising more capital, according to RenaissanceRe founder and CEOJames Stanard. “Mid-Ocean, as I remember it, had sold [its] firstround and [was] basically full,” he said.

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Mr. Stanard described the last two weeks in June 1993 as an“incredible” period he will never forget. In a borrowed Bermudaconference room, Mr. Stanard and one other underwriter began towrite business and found themselves for that fortnight one of thefew property-catastrophe reinsurers underwriting business anywherein the world.

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“We were essentially the only company in the world that wasactively seeking cat reinsurance business at that time, as thethird new company did not come online until about two weeks later,”Mr. Stanard said.

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“It was an incredible period when we were able to writecontracts for major companies around the world seeking ourcapacity,” he recalled.

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“We had management that was known and we had very prestigiousinvestors, but, if not for that unique period of market crisis, wecould not have gotten anywhere near as fast a start,” Mr. Stanardsaid.

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“By December 1993, when all of the new companies were online,the market was tight, and we were able to write business and grow,but it was not the same as being the only lemonade stand on theblock,” he said.

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In 1993, the eight cat companies were the new kids on the block,but that didnt keep them from being taken seriouslymanned as theywere by insurance veterans and backed by some of the strongestplayers in the sector.

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Mid-Ocean was backed by a partial investment from XL, and at itshelm was market legend Robert Newhouse, formerly of Marsh. Somemonths later the reins were handed off to Michael Butt. The companyprospered, went public and was then acquired in 1998 by XL.

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The same was to happen with Global Capital Re, with itsacquisition by XL in 1997.

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A year before that, ACE Limited was first to acquire one of the“cat pack” when it beat American International Group in its bid forTempest Re. ACE also acquired Cat Ltd. in 1998.

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Tempest founder Donald Kramer, now vice-chairman of ACE Limited,said the company had been backed by investments from General Re andto a smaller extent AIG. That was fine while the company waswriting pure cat, but over time, Mr. Kramer became convinced thatthe company should diversify into other lines.

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It wasnt that easy, however, as Mr. Kramer said he found himselfcompeting against Gen Re for customersnot a good situation with GenRe being Tempests core investor.

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An inability to one day conclude a Lloyds deal for these veryreasons led Mr. Kramer to turn over that business transaction toACE. As a result, he eventually began discussions with ACEs CEOBrian Duperreault, which led to Tempests acquisition by ACE.

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However, first there was a counteroffer from AIG Chairman andCEO Maurice Greenberg, who raised the stakes to $1 billion, but Mr.Kramer said: “Brian reached into his pocket and came up with $1.1billion.”

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The deal was done, and after paying $200 million to investors,Tempest became ACE Tempest Re.

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AIG was also behind another of the 1993 cat companies, IPCRe,which was the third of the eight companies to incorporate. IPCRewas the brainchild of Mr. Greenberg, and AIG continues to be IPCslargest shareholder with a 24.3 percent stake.

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IPCRe CEO James Bryce, the companys very first employee, saidafter a decade in business, IPCRe is in its strongest financialposition.

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On a risk-adjusted basis, the company has a stronger balancesheet than any of its competitors with no goodwill, no intangibles,no debt and no real reinsurance recoverable issues, Mr. Brycesaid.

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It reached that place, he said, by staying focused on its corebusinessproperty-catastropheand through careful management. Thecompany outsources its administrative work to AIG and only keepsunderwriting in-house.

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Mr. Bryce said the result is that IPC has, in 10 years, onlygrown to 15 and one-quarter employeesthe one-quarter being apart-time consultant.

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Also part of the 1993 cat pack was PartnerRe, which is nowlisted on the New York Stock Exchange and was set up by principalinvestors John Head and Swiss Re along with the companys first CEOHerbert Haag, who came from Swiss Re.

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In 2000, Mr. Haag, having seen the company grow from a staff ofthree to hundreds and its diversification into a multiline company,stepped down to pursue other interests. Taking up the reins wasPatrick Thiele, a veteran of the St. Paul Companies.

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Today, PartnerRe is the only one of the three remaining cats of1993 to aggressively grow its non-cat business, after its boardmade a strategic decision in 1997 to start writing along otherlines.

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However, RenaissanceRe has also diversified into non-cat linesorganically and through strategic joint ventures such as aninvestment in new start-up Platinum Underwriters.

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Indeed Mr. Stanard said the company was never a pure cat writer.“Even in 1993, we wrote some non-cat business, and we would haveliked to write more, but market conditions werent right,” hesaid.

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In contrast, IPCRe has stuck with its original business model ofbeing a property-catastrophe reinsurer.

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Meanwhile, PartnerRes aggressive diversification into otherlines was achieved through its acquisition of French reinsurer SAFRin mid-1997 and, subsequently, its acquisition of the reinsurancearm of the Swiss company Winterthur Re in late 1998.

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Although underwriting property catastrophe reinsurance remainsan important part of PartnerRes business mix, Mr. Thiele saidPartnerRe continues to rank as one of the top five global catwriters.

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PartnerRe is now a multi-line reinsurer with operations aroundthe globe and 830 staff.


Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, September 1, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.


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