Bermuda Market Becomes All-Purpose Player

Ms. Luck offered her insights at a meeting of the Association of Professional Insurance Women, which honored her as the group's "2003 Woman of the Year."

Ms. Luck joked that aside from the warm weather and beautiful golf courses on the island, which insurance professionals are too busy to enjoy anyway, there are several key reasons why the island has been a magnet for new capital and new businesses and clients for so many years.

"Bermuda has reached that very good balance between self-regulating and working with government," she said about the island's regulatory system, which allows for speed and ease of setting up operations. "Bermuda has very efficient processes in terms of how the government regulates the marketplace."

For example, "you can set up an insurance company, get it licensed and write business on a non-admitted basis very, very quickly," Ms. Luck said, "versus having to get admitted and licensed in 50 states of course that's going to be much more difficult."

This ease in setting up shop which is achieved despite strict compliance protocols and solvency requirements has been the main attraction for new companies and capital, most recently during the post Sept. 11, 2001 period, she said.

"All this comes from the wish to be flexible and quickly move when there is an opportunity," she said adding that this environment has resulted in the creation of a "virtuous cycle" in Bermuda, bringing in more companies and capital and their expertise. "It has been successful and it has attracted some great intellectual capital, and so you then have this self-fulfilling prophesy it is known as a great place to do business, and so great companies have come there, and they attracted superior intellectual capital, which in turn has provided an incubator for more growth."

Another favorable factor in Bermuda is the market's underwriting discipline, Ms. Luck said. She noted that by and large other than perhaps 2001?"what we've seen is Bermuda companies producing very solid combined ratios." This was helped, of course, by the fact that some of the new players in Bermuda don't have to deal with the past legacies plaguing older companies in other markets.

Commenting on the recent financial performance of Bermuda carriers, Ms. Luck noted that many players reported during 2004′s first quarter a return on equity that approached 18-to-20 percent?significantly higher than most counterparts in other markets.

"Capital moves quickly to where the greatest returns are," she said. "Clearly, investors come in opportunistically at times when there are growth opportunities. But what you get hopefully is also some long-term value investors, who are actually prepared to invest for the long haul."

Looking back at the maturing of her own career as well as the Bermuda market, Ms. Luck said that specifically there have been three distinctive growth spurts in the past couple of decades.

? "In 1985 and 1986, ACE and XL formed with less than $1 billion of capital as the result of the crisis in the casualty market," she said.

? Then in 1992 and 1993, Bermuda grew again, when, as a result of the lack of catastrophe capacity following Hurricane Andrew, the island saw formations of several companies with some $4.5 billion in capital, including Renaissance Re, Mid Ocean Re, Tempest Re, IPC Re and a number of others some of which have now been consolidated into other companies.

? "Then, post-9/11, we saw close to $15 billion of new capital come into Bermuda. Correspondingly, as you can imagine, you started to see real growth in assets," she commented.

The last wave of formations in the past few years has been especially breathtaking, she said, because it happened so quickly, at a pace no one could have anticipated not even a Bermuda veteran like Ms. Luck. "I was staggered by how quickly capital came into the Bermuda marketplace, how quickly it was deployed, and how quickly teams were put in place," she said.

The learning curve this time was much steeper when compared to 1985 and 1986, when it took ACE and XL a significant amount of time to get the right guidelines in place to do business with U.S. brokers and clients. "The learning curve is just so steep, so it's mind-boggling what we've seen happen in the last two-to-three years in Bermuda," she said.

Ms. Luck also paid homage to Bermuda's captive foundation, which she described as "the other aspect of Bermuda's insurance business," but one which continues to be "the backbone of Bermuda's success."

"I went to Bermuda in 1983, and captives were truly the business Bermuda was best known for. It still continues to be the case. It is the domicile of choice for many customers," she said.

She noted that the captive market has not only held its own, "but it's really grown and developed even more strongly." Part of the attraction now for captives is that Bermuda's overall infrastructure has matured to a very high level because it's supporting professional insurers and reinsurers, "and all of that infrastructure is available to captives as well."

So what does all this growth mean for Bermuda?

"Clearly it has matured. It has now reached a critical mass where you can talk about it as a marketplace. Bermuda will continue to succeed as long as it continues to adhere to a strict regime of self-regulation, working with the government and the industry," Ms. Luck said.

Looking forward, she also pooh-poohed the growing ranks of those who talk about the demise of the healthy pricing environment, adding that "every cycle has its own dynamics and its own profile. This is clearly a very different cycle it's broader and deeper and will play out differently from any previous cycle."

Reproduced from National Underwriter Edition, June 25, 2004. Copyright 2004 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.