London Is Still The Clear Winner In London Vs. Bermuda Contest International Editor
When capital poured into Bermuda last year, there were concerns that Bermuda was gaining primacy, to the detriment of other markets, primarily London. But Bermuda and London have mutually advantageous relationships, observers agree.
While Bermuda is a good place to place insurance capital, it doesnt have the kind of infrastructure that exists in other markets, said Stephen Catlin, chairman of Catlin Underwriting Agencies Ltd., which operates a Lloyds managing agency and last year started up a Bermuda insurance company called Catlin Insurance Co. Limited.
"If you look at the City of London and those who are employed in the City of London whose income is directly or indirectly related to the insurance industry, the number of people involved is probably in excess of the entire population of Bermuda," Mr. Catlin told National Underwriter.
"From an infrastructure point of view, to suggest that Bermuda can be a serious competitor at that level is impossible. They are creaking at the seams over there," he said, noting, for example, that there arent enough schools. "Bermuda can never ever compete from an infrastructure point of view with New York or Chicago or London."
It doesnt have the distribution or enough actuaries, accountants, lawyers or claims adjusters, he said. "This list goes on." And its never going to happen "because youd never get them over there," he added.
John Johnson, partner, Deloitte & Touche in Bermuda, agreed that Bermuda will never replace London.
"The Bermuda companies supplied a lot of capacity to Lloyds operations when corporate capacity became a concept," Mr. Johnson said. "And a lot of the new players in Bermuda have set up European underwriting platforms as well as U.K. operations to take advantage of London market opportunities."
He said Bermuda is a small place and while the infrastructure there is fairly sophisticated, in terms of scale it can never replace London.
Mr. Catlin emphasized he is not knocking Bermuda. "It is a good place to be and we have an insurance company there, which is doing very well," Mr. Catlin continued, stressing, however, that its not a good location for all lines.
"Its a good place to write property-cat business. Its not a bad place to write excess liability business, nor professional indemnity business," he said. "And its pretty good for financial risk management/ART business." (Catlin Insurance, the Bermuda subsidiary, is developing a portfolio of both traditional property and casualty treaty business and a portfolio of non-traditional business such as alternative risk transfer and finite risk products.)
But certain lines, such as property, require extended infrastructure, which cant be found in Bermuda, he said. "The island isnt big enough and the employment laws are sufficiently tough to make it difficult to import the infrastructure and resource you need."
A Bermuda company must then decide whether it needs to manage and own that infrastructure outside the island or whether it is going to give its pen to somebody else, he said.
As a result, he said, quite a lot of the growth of the Bermudian start-up companies has not come from business theyve written themselves. Theyve allowed Lloyds syndicates to write it and then they take a qualifying quota share, Mr. Catlin explained. Bermuda is actually a sub-contracted London-driven business, he noted wryly.
So a lot of the capital that has been raised in Bermuda has effectively been deployed elsewhere throughout other markets, he said.
In addition, he said, the vast majority of Bermuda insurance companies have platforms outside of Bermuda.
For example, John Charman, who heads up Axis Specialty, has opened up an office in London, he noted.
"I suspect he has come to the same conclusion that we have, which is that London is a massive distribution center for the insurance industry with a massive resource, and to ignore it as part of your trading platform would be to miss out on a number of business opportunities," he said. Mr. Charman was not available for comment.
Karole Dill Barkley, director and segment specialist for the Bermuda market at Standard & Poors in New York City, agreed that most of the new Bermudians will have multi-jurisdictional operations, similar to what occurred with ACE, XL and PartnerRe.
"There are always advantages to being close to your clients," she affirmed. "It looks like a lot of the Bermuda companies, both the older ones and the newer markets, are looking to establish presences in other jurisdictions, such as the States and Europe, where it will give them access to business," she said.
Most franchises in the Bermuda market recognize there are advantages to having an onshore presence (in London, the United States and elsewhere) that far outweigh the tax disadvantages of having operations in those locations, she asserted.
However, she noted that growth through acquisition comes with its own risks. "To mitigate those risks, growth through acquisition is taking the form of purchases of renewal rights and investments in new platforms for new business." She cited the example of Renaissance Res investment in Platinum Underwriters, which was spun off from The St. Paul last year and did not include pre-2002 loss reserves.
Don Kramer, vice chairman for ACE Limited, didnt expect the Bermuda market players to consider consolidation. "The stock market is so bad that nobody has currency to trade," he said. "Youll see small acquisitions of strategic units and pieces, but its hard for me to fathom the big deals because nobody wants to trade their stock at these prices."
Ms. Dill Barkley thought that Bermuda might drain some business opportunities from London, due to the fact that a number of the Bermuda franchises, such as Axis and Montpelier, are both led by principals that had a very important role in the Lloyds market.
"As a result, there are specialty lines, such as aviation and marine, that are increasingly being written in Bermuda that traditionally had been written primarily in the London market," she said, noting that there are brokers who are bringing more of that business to Bermuda.
Jim Auden, senior director, Fitch Ratings in Chicago, said Bermuda has gained from the problems of other markets. When Lloyds had difficulties in the 1990s, that helped Bermuda increase its market share, and now there are a number of U.S. and European companies that are having trouble or are cutting back.
"Where does the business go? Some of that unfettered capital thats in Bermuda will be able to attract new business opportunities," he said.
James Bryce, president and CEO of IPCRe in Bermuda, affirmed the turmoil in the European marketplace has had a beneficial effect on highly rated Bermudian companies.
With all the turmoil of companies closing down, going out of business or for sale, security is much more of an issue today than it ever has been in the past, particularly in the international (non-U.S.) arena," he said in a January interview.
"Triple-A is becoming extinct," he said. The continuing players like IPCRe, which has an A-plus rating, had an advantage during the January renewals, he added. "Buyers are differentiating between ratings, performance, experience and consistency," he said. "We have a track record and we have consistency, so were going to have preference in terms of signings."
Reproduced from National Underwriter Edition, March 17, 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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