Strategic Shifts Eyed In Bermuda & Beyond

In addition to Montpelier Re, a member of Bermuda's "Class of 2001," some of the already diversified members of the same class signaled strategic shifts and expansions of their businesses during the quarter.

The companies set up in the wake of the 9/11 attacks were not alone, with members of earlier and later classes describing plans to expand or change their business models.

A common theme involves adding more insurance business to mixes that include both reinsurance and insurance.

o Arch Capital:

"Our original business plan contemplated that insurance would become a greater part of our business over time," said Arch CEO Dinos Iordanou. He explained the attraction to this strategy, noting that insurers have advantages over reinsurers in selecting and pricing risk in times of heightened competition, since they are closer to the risks they write.

"The anticipated change in business mix took longer than we originally thought," Mr. Iordanou said during a conference call, explaining the delay arose because Arch took advantage of favorable reinsurance market conditions after the catastrophes of 2004 and 2005.

Mr. Iordanou said that in addition to a shift to more insurance business, his company will also intentionally move to write smaller accounts. While some specialty insurance divisions may have required $50,000 minimum premium accounts from distribution partners in the past, now the requirement might drop to $25,000 or lower, he noted.

"We're broadening the funnel because we've got to process a lot more ore to find the golden nuggets," he said. "As we continue to write more small-to-midsized accounts, our ability to write business locally is proving to be an advantage," he added, noting that Arch's insurance group plans to expand that capability by opening two new offices in early 2008 in Philadelphia and Dallas.

Mr. Iordanou said he believes the infrastructure Arch has built--which brings it close to a diverse set of distribution partners and insureds--gives the company an edge over the newest competitors.

o Aspen Insurance Holdings:

At Aspen, expansion efforts included an entrance into the global excess casualty insurance market, with a dedicated underwriting unit in Dublin poised to write construction and global risk management programs.

o Endurance Specialty:

Endurance set up a health care practice in the United States, targeting medium-to-small community hospitals, and also acquired a Texas-based managing general agency specializing in underwriting U.S. federally sponsored crop insurance.

Endurance CEO Kenneth LeStrange told analysts and investors during a third-quarter earnings conference that the addition of the MGA, known as ARMTech, would likely bring the company's split of insurance and reinsurance business close to 50-50.

Through nine months, 34 percent of Endurance's gross premiums were in insurance, according to financial reports.

Mr. LeStrange said the company also added three underwriting teams in Seattle, Atlanta and Stamford to expand and diversify specialty insurance operations.

In addition, during a September investor conference, Worldwide Insurance CEO Michael Fujii disclosed Endurance's ongoing efforts to change its mix of distribution partners--from 95 percent large retailers in 2005 to over 60 percent specialty agents and wholesale brokers this year.

o Ariel Re and Validus Re:

The two members of the newest Bermuda "Class of 2005" embarked on their own expansion plans--starting off in London this summer with Lloyd's market acquisitions of Atrium Underwriting and Talbot Holdings.

Validus said Talbot would be its principal operation in the direct insurance market and that Talbot's Syndicate 1183 would form its primary point of access to the London market.

In addition to the Atrium deal, Ariel--which from inception had set its sights on writing both insurance and reinsurance, including both property and casualty insurance classes--announced in September that it would also buy a U.S. specialty insurer from Zurich.

o Flagstone Re:

Another 2005 startup that developed its original business model around short-tailed property and casualty reinsurance, with an eye toward diversifying as broadly as it could internationally, Flagstone Re continued to move forward with that goal in the third quarter.

The reinsurer, which opened an office in Puerto Rico in September and another in October in Dubai, also agreed to provide underwriting and modeling services to a reinsurance company in South Africa.

o Ironshore:

Officially launched as a coastal commercial property insurer in January 2007, Ironshore has diversified the lines of business it writes more quickly than any recent startup, launching IronPro, a professional lines platform, in May and IronBuilt to expand into construction liability in October.

Ironshore bought a U.S.-admitted shell company last month as well.

o IPC Re:

One of the island's oldest companies, IPC Re has been a seeming holdout to the diversification trend. While the reinsurer is globally diversified, with a 50-50 split of U.S. and non-U.S. business, its commitment to a business model narrowly focused on property reinsurance prompted a ratings downgrade from Standard & Poor's to "A-minus" early this year.

More recently, IPC CEO James Bryce suggested the company's focus might not continue indefinitely. Responding to an analyst's question during a third-quarter earnings conference call, Mr. Bryce said: "We always want to enhance shareholder value--and the current flavor is [that] diversification does seem to enhance value in terms of share price."

"We're always looking at options," he said, declining to be specific. Noting that the diversification issue would likely come up in a forthcoming A.M. Best ratings review, he said, "I think it's something that's very useful to look at, but we have no specific plans at this point to make any changes."