For over a decade, individual London market insurance professionals have been trickling southwest to work in Bermuda, lured by lower taxes and a kinder climate. Until now, though, most companies here have opted to play it safe and stick with the expertise and breadth of opportunities concentrated in the warren of streets and lanes which constitute London's financial heartland–known as The City.

That changed late last year when Lloyd's insurers Amlin and Hiscox set up sizeable new operations in the mid-Atlantic tax haven ahead of January 2006 renewals. They were soon joined by Lancashire, a new company with strong Lloyd's links and a London stock market listing. Lloyd's insurer Omega is hot on their heels and others are expected to follow.

All are keen to capitalize on the upturn in U.S. insurance rates following Hurricanes Katrina, Rita and Wilma, prompted by capacity shortages–especially in the reinsurance and retrocession markets. They have chosen to expand in Bermuda primarily for tax reasons.

“It's a very clear-cut case of tax being one of the main drivers. It is tax-efficient to underwrite business in Bermuda,” explained Miles Trotter, a London-based analyst with A.M. Best.

Additional reasons cited by London insurers for setting up in Bermuda include:

o Strategic diversification.

o Proximity to the United States.

o The need to be represented in this increasingly important property-catastrophe market.

o The fact that this overseas territory of the United Kingdom is one of the fastest places in the world for setting up an insurance company.

Amlin, for one, was planning a Bermuda operation even before last year's hurricane season. Back in 2001–after 9/11–it began considering setting up bases outside Lloyd's in response to concerns voiced by investors and analysts.

“While Lloyd's today is in a very strong position, we would never want to be in a position again where Amlin plc is dependent on just one marketplace,” explains John Andrews, chief underwriting officer for Amlin Bermuda Ltd.

Those plans were brought forward and expanded following the devastation in New Orleans last August.

“We considered that Bermuda was a market that we could no longer fail to be part of. If we'd delayed as planned until summer 2006, we'd have missed a lot of the business that we now have,” said Mr. Andrews–who added that Amlin Bermuda wrote around $5 million of income on its first day of trading on Dec. 1, 2005.

The speed with which Amlin was able to accelerate its plans confirms Bermuda's reputation as being start-up-friendly. In addition to a rapid regulatory system, the island has a network of service providers geared up to support new firms, and London insurers are taking full advantage of this.

As well as tax advantages, Hiscox expects to see business–especially from the United States–that it would not be offered in London. “It's an odd thing. As communications get better, you need to get more local,” said Hiscox Bermuda Chief Executive Rob Childs. Although the company cannot market into the United States, it does deal with U.S. brokers visiting the island and offers them better commission terms than in London.

In contrast, Amlin Bermuda has chosen to do business only through London brokers, and will pay the same commission as its London Syndicate. Mr. Andrews explained that “some London companies which have set up here [in Bermuda] have made themselves very unpopular with London brokers. Effectively they have taken away the brokerage that would otherwise be earned in London.”

Whether those divergent approaches will make any difference in the long run is not yet clear, since both companies reported a positive reception in Bermuda. By late January, Amlin Bermuda had written $60 million of business that was new to the group–on top of writing reinsurance of the Amlin group as part of a whole-account, quota-share agreement.

Hiscox has not issued numbers, but Mr. Childs talks of a strong start since opening in November and especially since obtaining its A.M. Best rating on Dec. 12, 2005.

“We've done extraordinarily well. We got a very good showing from the brokers around the world. We have a business plan, and we think we're going to meet it,” he said, adding the fact that Hiscox has been around since 1901 clearly helps.

As a brand new start-up rather than an offshoot of an existing entity, Lancashire is in a different position. Consequently, a spokesperson said the carrier wouldn't comment on initial trading until later this year.

However, Lancashire is hardly an unknown quantity. Its chief executive and chief underwriting officer is Richard Brindle, a former underwriter at Lloyd's Charman Underwriting Agencies, and until recently a director of Ascot Underwriting–a Lloyd's agency formed in 2001 with support from American International Group.

Like the others, Lancashire has timed its launch to coincide with firming rates. It believes the most significant change in pricing and policy terms and conditions will occur in the retrocession, marine and energy, and property classes and will therefore concentrate its activities in those areas.

While property-catastrophe will also be important to Hiscox, the company aims to write a more balanced book than most in Bermuda–a strategy that Mr. Childs argues offers better long-term security.

“We will be writing property-cat pro rata, but we are balancing it with ceded business from our sister companies around the world, which is diversifying and noncorrelating business,” he said. “The idea is we should be able to take a significant hit on the reinsurance side and still make money.”

Amlin is also in Bermuda for the long haul and therefore aims to avoid the high attrition end of the market. Its strategy is to replicate the business of its Lloyd's syndicate–with one exception. “We are writing very little casualty business here,” said Mr. Andrews. “It is low-attrition, high-margin business, which by default equates predominantly to catastrophe excess-of-loss.”

Omega Specialty Insurance Company Ltd. received its Bermuda license in early February. Chief Underwriting Officer Stephen Edwards–who has spent 35 years in the London reinsurance market–aims to establish a diversified portfolio primarily in short-tail classes of business, including nonmarine property insurance, property-catastrophe treaty reinsurance, marine insurance and reinsurance. The company expects to receive a financial strength rating of “A-minus” (excellent) from A.M. Best.

All the new London entrants are optimistic about prospects for the year ahead, despite January renewals on some international business failing to meet expectations. In North America, in contrast, Amlin's Mr. Andrews described renewals as “pretty much as we estimated they would be–which is for increases of around 15 percent for people who are not in the high-risk areas. People buy more cover, and therefore the rates-on-line have gone up almost by the drip-down effect.”

Not surprisingly, coastal areas that suffered losses last year or are considered vulnerable to high-frequency losses have seen higher increases–sometimes much higher. Hiscox reports hikes of up to 100 percent, although Mr. Childs of Hiscox emphasized that the situation is very varied.

“Good clients and good brokers have produced different results. People who didn't get losses have been treated differently from those who did get losses.”

Outside North America, January renewal rates frequently lagged expectations. “We wonder whether other competitors are fully aware of what their own retrocessional charges are,” warned Mr. Andrews. “From what we know, we can't believe that the continuing level of rates on the international side can continue much longer.”

He predicted higher international rates for April 1 renewals, “and certainly for July 1. And we anticipate that those who got away with it for Jan. 1 will be paying more for July 1.” Although looking to the United States for much of Amlin Bermuda's business, Mr. Andrews will be maintaining his long-established links with Japan and continuing to write for that market, too.

Hiscox also reported flat rates on international business for Jan. 1, which Mr. Childs attributed to a plentiful supply of capital. He agreed, however, that this situation is unlikely to last. “It wasn't universally wonderful, so my own personal feeling is that the market will just continue to get tougher during the year,” he said.

Still, disappointing international renewals have not dampened the optimism of new arrivals. Mr. Childs is hosting a steady stream of brokers and clients “looking to generate business and seeing how we can help them provide solutions.”

Over at Amlin Bermuda, Mr. Andrews expects to increase staff numbers to around a dozen this year and then spend the next year or two “consolidating what we have already started doing.”

Omega is equally positive about the quality of business it expects to write in Bermuda, a spokesperson for the company said. And it is not the only other London insurer booking one-way flights to Bermuda.

“I wouldn't expect the list you have there to be the end of it,” said A.M. Best's Mr. Trotter. “As long as the Bermuda market has its attractions, which it clearly has, there will be other operations that will consider that option to diversify their sources of business.”

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