Nothing better underscores the emerging role of Bermuda on the global insurance scene than last year's hurricane season with its record catastrophe losses.

The $15 billion in claims payments coming from the island represented nearly a third of the total, while 2004's $4.5 billion represented about a fifth of that same figure.

Today, Bermuda hosts 13 of the top 40 reinsurers in Standard & Poor's ranking, constituting nearly a third of the surplus.

Such growth cannot happen without certain image problems. To remedy such problems, top Bermuda insurers have put a new voice at the helm of an association they formed years ago.

Brad Kading, a longtime Reinsurance Association of America senior official, today runs the Association of Bermuda Insurers and Reinsurers as a virtual one-person show from both Washington and the island itself.

“Our mission is to communicate to regulators around the world about the quality of regulation Bermuda applies to the Class 4 companies,” Mr. Kading said, referring to the large companies.

Not only are Bermuda primary and reinsurance companies some of the largest in the world, they are being regulated in a manner appropriate to their market size, he said.

Mr. Kading sees both regulators and potential buyers of insurance as the prime targets of his mission.

Most insurers say their move to the island was prompted not by the quality of the regulation, but the quantity–as in diminished. But Mr. Kading sees no conflict in communicating to the world that regulation can be effective, while at the same time not serving as a roadblock to rapid product development and success.

“If you are in the commercial lines in reinsurance, you can enter business very quickly,” Mr. Kading said.

The much-storied Class of 2005 was not only able to hire staff and raise capital, but also get licenses within 90 days. “It is important that there be regulators who appreciate speed to market. One of the valuable contributions the Bermuda government has made to the world's economy is to make sure you have a commercial insurance sector that is very responsive,” he said.

Jeremy Cox, insurance supervisor for the Bermuda Regulatory Authority, said that the island has been moving toward global regulatory standards as enunciated by the European Union, the International Association of Insurance Supervisors and the Solvency II standards-setting effort.

This year Bermuda lawmakers will consider a series of proposals that will, among other things, add new requirements for licensing top personnel and new rules for insuring that business is conducted in a prudent manner.

Mr. Cox was reluctant to go into detail since the proposals have not been presented to legislators.

“Clearly what is going on, particularly with regard to reinsurance, is that there is a movement toward an international standard that would be set for reinsurance regulation,” Mr. Kading said.

In addition, two years ago regulators won the right to conduct on-site inspections of Class 4 companies.

So-called “Class 4's” are the major players, which represent only about 2 percent of the number of companies but claim 34 percent of the capital and surplus. Most of the other nearly 1,300 companies are captives.

“The key is that Bermuda must apply the appropriate solvency regulation to this growing Class 4, but they do not need to apply that same level of solvency regulation to captives,” he said.

Morgan Stanley Analyst William Wilt recently returned from a rain-soaked sojourn to the island and found capacity wanting not only in the reinsurance market, but also in the local hostelries.

“Lore in the capital of Hamilton has it that the rating agencies can be frequently spotted walking the streets, Billy clubs in hand, should any rogue start-up reinsurer stray too far from its business plan,” he wrote in a research note.

Mr. Wilt made the point humorously that Mr. Kading agreed with to a certain extent–that today rating agencies have become de-facto regulators.

And Mr. Wilt touched on the one issue that could hamper future industry growth on the small island. “While attracting and paying for top talent has long been an issue for employers on the small island, recent tax law changes affecting U.S. citizens living abroad may add some new hurdles surrounding incurred living expense programs,” he said.

Mr. Kading also noted that authorities have restricted the number of children that can move to the island.

As for the overall substantive issues, Mr. Kading feels the world business community has a “blank slate” when it comes to Bermuda, although there is a growing realization of its importance.

“As people look at the reinsurance market share, they have said it is a fairly concentrated market. So our message to the buyers is that if you are looking for diversification, Bermuda is your hope. Because this is where all the new capital has come in the last ten years, and this is where the growth has been,” he said.

With Brad Kading mug–

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