1993 Bermuda Cat Reinsurers Celebrate 1st Decade

Bermuda Correspondent

A decade after eight reinsurance companies set up to meet the void in property-catastrophe capacity after Hurricane Andrewthe most costly natural catastrophe to hit insurance and reinsurance marketsonly three remain standing as independent operations.

Those three, RenaissanceRe, PartnerRe and IPCRe, launched and quickly built strong franchises on the back of hard market conditions in the property-catastrophe sector following Andrew's scourge of the Southeast seaboard in August 1992, which racked up an insured loss of $15.5 billion.

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

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

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

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

By the time the second cat companyRenaissanceRecame online in June 1993, Mid-Ocean had already used up its capacity and was out raising more capital, according to RenaissanceRe founder and CEO James Stanard. “Mid-Ocean, as I remember it, had sold [its] first round and [was] basically full,” he said.

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

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

“It was an incredible period when we were able to write contracts for major companies around the world seeking our capacity,” he recalled.

“We had management that was known and we had very prestigious investors, but, if not for that unique period of market crisis, we could not have gotten anywhere near as fast a start,” Mr. Stanard said.

“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 the block,” he said.

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

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

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

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

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

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

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

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

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

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

IPCRe CEO James Bryce, the companys very first employee, said after a decade in business, IPCRe is in its strongest financial position.

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

It reached that place, he said, by staying focused on its core businessproperty-catastropheand through careful management. The company outsources its administrative work to AIG and only keeps underwriting in-house.

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

Also part of the 1993 cat pack was PartnerRe, which is now listed on the New York Stock Exchange and was set up by principal investors John Head and Swiss Re along with the companys first CEO Herbert Haag, who came from Swiss Re.

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

Today, PartnerRe is the only one of the three remaining cats of 1993 to aggressively grow its non-cat business, after its board made a strategic decision in 1997 to start writing along other lines.

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

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

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

Meanwhile, PartnerRes aggressive diversification into other lines was achieved through its acquisition of French reinsurer SAFR in mid-1997 and, subsequently, its acquisition of the reinsurance arm of the Swiss company Winterthur Re in late 1998.

Although underwriting property catastrophe reinsurance remains an important part of PartnerRes business mix, Mr. Thiele said PartnerRe continues to rank as one of the top five global cat writers.

PartnerRe is now a multi-line reinsurer with operations around the 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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1993 Bermuda Cat Reinsurers Celebrate 1st Decade

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