Bermudians Enter D&O, E&O Markets

However, she added, there has been "a resurgence in the domestic [U.S.] market and its becoming increasingly competitive, both domestically and in Bermuda."

As a result, the Bermuda markets are going to start to get squeezed because the domestic broker "has got more and more options" and can get capacity filled domestically, in London or in Bermuda, she continued.

"The market is on a turn again. Its stabilized and theres a lot of competition on excess layers," Ms. Cancro said, noting that this statement doesnt yet apply to the primary marketplace, which is still very hard.

Over the last several years, rates spiked and got very hard, very quickly, she said. "We had 500 percent increases."

However, she said she didnt think the market would turn around as quickly as it hardened. But its currently stabilizing and becoming more predictable.

"Were not seeing the huge increases anymore. Were starting to see [risks] come in as expiring, which I havent seen in almost two years."

Adam Codrington, executive director of Aon Professional Risks in London, said the long-standing D&O and E&O carriers, such as American International Group, ACE and Chubb, are not offering the sizes of limits on programs that they did several years ago. This, he noted, has provided an opportunity for the new Bermudian carriers in the U.S. and international markets.

Indeed, many of the new Bermudians have set up London or Dublin offices to take advantage of U.K. and European business opportunities, he said, citing Allied World Assurance Corp., which has set up an office in London, while Max Re is operating an office in Dublin. (AXIS Capital, Endurance and Arch Insurance have also set up London offices.)

"Theyre here to access the distribution platforms that the big brokers have and take advantage of London being an international insurance marketplace," Mr. Codrington said.

Further, he added, some long-standing players, such as XL, have also increased their D&O capacity. XL moved its professional lines business out of Lloyds and has switched, for the most part, from a primary writer to an excess writer for European business, Mr. Codrington said.

Mike Cavallaro, director of ARC Excess and Surplus in Garden City, N.Y., said Bermuda has tried to capitalize on the improved rates and conditions of the current market.

"Its not only Bermuda, but certainly they led the charge," he said, noting that this isnt limited to the new carriers because XL has a huge market share in D&O. "The XL people got in before the market turned. They obviously have a huge market share."

Certainly, AXIS and Arch have made "some real noise as well," he said.

Mr. Cavallaro emphasized that the Bermuda players havent been irresponsible in terms of coming in and cutting prices, just to gain market share.

"Theyve filled a valuable need in terms of capacity, especially when it comes to D&O and E&O," he added. "Its not necessarily that the number of carriers has shrunk by that much. Its really just that the use of capacity by the existing markets has been cut back."

"Risk appetite has definitely changed for a lot of different companies. The use of capacity has definitely shrunk. I think things are starting to ease up a bit, but theres definitely still more stringent underwriting and theres still a reduced appetite on the part of most of the existing carriers that are out there," he said.

The Bermuda carriers came in and basically took up chunks of programs that had holes in them, "because those programs needed the capacity. They had to fill the void," he went on to say.

The market is attractive because theyre getting pieces of those programs at increased ratesnot only increased rates overall, but increased excess rates, he said. "Those guys quote primary too. Theyre getting the benefit of coming in at the right time, if it is the right time."

Mr. Codrington said the question is whether the new Bermudian carriers intend to be in the D&O and professional liability market for the long haul.

"The question mark is why the Bermuda carriers are in this game," he said, questioning whether some may be in the D&O market opportunistically because the market has already turned in the short-tailed property business, the original area of their focus.

The question is how much longer the D&O rates will hold up, he said. "Premiums are not going up as they have done over the last two years. And in a lot of instances theyre beginning to flatten out a bit," he said.

"If there are too many more entrants into the market, it wont be long before rates will begin to be cut," Mr. Codrington said. "At what point will the Bermuda carriers say weve had enough, weve got our money and were off. Or do they have the view that there is a long-term future in this business."

Several underwriters from the new Bermudians stress theyre in the market for the long haul. D&O and professional liability teams have been hired. The trick, they say, is maintaining underwriting discipline.

"Bermuda is becoming a very important market in the overall world capacity for professional liability," said Scott Carmilani, executive vice president and senior underwriting officer, Allied World Assurance Corp. in Bermuda.

"Theres a couple of hundred million dollars of capacity here that doesnt exist in a lot of other places, so its an important market for large and medium-sized" insureds, said Mr. Carmilani.

He was not concerned that the market is beginning to soften.

"We have a large book now, and I dont see it leveling or retrenching at all."

He said less than 20 percent of AWACs book is devoted to D&O and professional liability, and the company wrote close to $250 million in premiums this year.

"We anticipate well increase the book. Are we being aggressive? No more so than we have been in the past or that we expect the market to be like in the future. Were interested in steady growth," Mr. Carmilani said.

Michael Baldwin, the managing director of the London branch of the Dublin-based Allied World Assurance Company Europe Ltd., indicated the companys commitment to the long term, simply through its formation of a Dublin subsidiary and a London branch, with a group of experienced underwriters.

"Clearly we have put together a team of experienced people in the area. I think were very disciplined in that we dont get into a line of business until we have people who genuinely have expertise and understand the business," he said.

"It is a disciplined approach."

"The tough part of the job is to continue to price things responsibly. Were not looking to grow too fast and there needs to be a pull back" when the market starts to turn, said Thomas Gamble, executive vice president, Arch Insurance in New York City.

That being said, incumbent carriers are facing D&O claims of between $35 billion and $40 billion, with the inventory of claims out there, so the environment is going to be opportunistic for quite a while, he said.

"In general, the D&O marketplace continues to shake itself out. I think those companies that emphasize appropriate pricingare the ones who are going to come out the winners. Clearly I believe Arch to be one of those," he emphasized.

"Our focus will be on long-term relationships with clients that are priced appropriately at the right terms and conditions," said Mr. Gamble. "Were in this for the long term. So were being certain to price risks that we view as profitable."

Mr. Gamble noted that Arch and the other new Bermudian-based companies dont have legacy issues or terms to correct in their lines of business. "This allows us to know our actual cost probably better than some of the more established companies."

Mr. Gamble said Arch is writing more and more primary business in the United States.

"Originally Arch, as well as a lot of the new Bermuda companies, took excess positions because thats where the holes in the existing programs were," he said. "But as weve developed our book of business and portfolio, weve begun to look at more things on a primary basis and lower levels of attachment points."

"The key to success is a balance between all the potential clients in a portfolio," he said, explaining that Arch writes D&O for Fortune 1000 companies as well as the middle-market and harder-to-place risks.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 7, 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.