For over a decade, individual London market insuranceprofessionals have been trickling southwest to work in Bermuda,lured by lower taxes and a kinder climate. Until now, though, mostcompanies here have opted to play it safe and stick with theexpertise and breadth of opportunities concentrated in the warrenof streets and lanes which constitute London's financialheartland–known as The City.

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That changed late last year when Lloyd's insurers Amlin andHiscox set up sizeable new operations in the mid-Atlantic tax havenahead of January 2006 renewals. They were soon joined byLancashire, a new company with strong Lloyd's links and a Londonstock market listing. Lloyd's insurer Omega is hot on their heelsand others are expected to follow.

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All are keen to capitalize on the upturn in U.S. insurance ratesfollowing Hurricanes Katrina, Rita and Wilma, prompted by capacityshortages–especially in the reinsurance and retrocession markets.They have chosen to expand in Bermuda primarily for taxreasons.

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

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Additional reasons cited by London insurers for setting up inBermuda include:

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o Strategic diversification.

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o Proximity to the United States.

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

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o The fact that this overseas territory of the United Kingdom isone of the fastest places in the world for setting up an insurancecompany.

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

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“While Lloyd's today is in a very strong position, we wouldnever want to be in a position again where Amlin plc is dependenton just one marketplace,” explains John Andrews, chief underwritingofficer for Amlin Bermuda Ltd.

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

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“We considered that Bermuda was a market that we could no longerfail 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 ofincome on its first day of trading on Dec. 1, 2005.

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The speed with which Amlin was able to accelerate its plansconfirms Bermuda's reputation as being start-up-friendly. Inaddition to a rapid regulatory system, the island has a network ofservice providers geared up to support new firms, and Londoninsurers are taking full advantage of this.

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

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In contrast, Amlin Bermuda has chosen to do business onlythrough London brokers, and will pay the same commission as itsLondon Syndicate. Mr. Andrews explained that “some London companieswhich have set up here [in Bermuda] have made themselves veryunpopular with London brokers. Effectively they have taken away thebrokerage that would otherwise be earned in London.”

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

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

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

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

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

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Like the others, Lancashire has timed its launch to coincidewith firming rates. It believes the most significant change inpricing and policy terms and conditions will occur in theretrocession, marine and energy, and property classes and willtherefore concentrate its activities in those areas.

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While property-catastrophe will also be important to Hiscox, thecompany aims to write a more balanced book than most in Bermuda–astrategy that Mr. Childs argues offers better long-termsecurity.

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

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Amlin is also in Bermuda for the long haul and therefore aims toavoid the high attrition end of the market. Its strategy is toreplicate 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 bydefault equates predominantly to catastrophe excess-of-loss.”

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Omega Specialty Insurance Company Ltd. received its Bermudalicense in early February. Chief Underwriting Officer StephenEdwards–who has spent 35 years in the London reinsurancemarket–aims to establish a diversified portfolio primarily inshort-tail classes of business, including nonmarine propertyinsurance, property-catastrophe treaty reinsurance, marineinsurance and reinsurance. The company expects to receive afinancial strength rating of “A-minus” (excellent) from A.M.Best.

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

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Not surprisingly, coastal areas that suffered losses last yearor are considered vulnerable to high-frequency losses have seenhigher increases–sometimes much higher. Hiscox reports hikes of upto 100 percent, although Mr. Childs of Hiscox emphasized that thesituation is very varied.

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

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

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

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

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

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

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

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“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 hasits attractions, which it clearly has, there will be otheroperations that will consider that option to diversify theirsources of business.”

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