Innovative Bermuda thrives in period of change

Bermuda:Re+ILS held its annual roundtable at the Monte Carlo Rendez-Vous yesterday (Monday September 14). A panel of senior executives debated how the industry is changing and predicted that Bermuda will thrive as new waves of capital and innovation wash over the island.

Attendees:

Brad Adderley, partner, Appleby

John Andre, group vice president, property/casualty, AM Best

Kathleen Faries, CEO Tokio Solution

Brad Kading, president and executive director, Association of Bermuda Insurers and

Reinsurers (ABIR)

Richard Lowther, COO, Hiscox Re

Maamoun Rajeh, CEO, Arch Re

Kathleen Reardon, CEO Hamilton Re

Jed Rhoads, president & chief underwriting officer, Markel Global Reinsurance

Paul Schultz, CEO, Aon Securities

It may have been an early start for the attendees of the Bermuda:Re+ILS annual roundtable at Monte Carlo’s famous Fairmont Hotel, but following a few coffee calls the conversation moved swiftly and covered many of the topics of importance to the reinsurance industry centred in Bermuda and beyond with one panel member suggesting a collaborative effort to tackle the challenges in writing cyber insurance.

Moderator Wyn Jenkins, the managing editor of Bermuda:Re+ILS, kicked off the conversation by asking how existing business models were dealing with the influx of alternative capital into the reinsurance space.

Brad Kading, the president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), picked up the mantle saying he looked upon it simply as capital taking on risk and it was up to each individual company to decide how to play with alternative capital.

John Andre, group vice president, property/casualty, AM Best, admitted that it was something that his firm was keeping an eye on. “It’s a new frontier, and everybody has a different twist on it,” he said. “We have no bias towards any one business model.”

Kathleen Faries, chief executive of Tokio Solution, said an “interesting evolution” had been taking place and that partnering with different forms of capital could represent a very efficient way of managing risk. Faries said such an approach was increasingly core to her organisation and would be more important to the whole industry in the future.

Maamoun Rajeh, CEO, Arch Re, said that any form of new approach or structure should be a client-driven development. “We try and be problem solvers for our clients. We have a long track record of matching people to capital,” he said.

Richard Lowther, COO, Hiscox Re, said that being nimble was increasingly important given the changing dynamics in the market and cedants’ shrinking panels. “We are seeing a broad spectrum of approaches,” he said.

Diversification

Next up for digestion with the coffee was the question of diversification in businesses. Jed Rhoads, president & chief underwriting officer, Markel Global Reinsurance, said its recent acquisition of CATCo was too good an opportunity to turn down as it had found it tough to grow this side of the business organically.

Kathleen Reardon, CEO of Hamilton Re, said that ongoing merger and acquisition activity was evidence of the need of many organisations to diversify. She stressed that Hamilton had sought such a strategy from the start, quickly building insurance and reinsurance operations and establishing a presence in Lloyd’s.

Reardon also said that she believes that technology and the use of big data could become a big differentiator between companies and, if the industry was to truly realise this potential, it also needed to be able to attract young professionals into the reinsurance business. “New talent is key,” she said.

A broker’s opinion was sought and Paul Schultz, CEO Aon Securities, said brokers were working with clients to optimise risk transfer programmes using many of the approaches now available and he stressed his firm was “indifferent” on the source of capital.

The broker’s job was to “connect all the dots” but he added that the role of the broker had changed over the years and today they needed to be aware of everything that is in the marketplace in order to help clients.

Schultz was then asked if it was necessary to educate clients about the options available. He replied that the broker’s job was to add value and was increasingly becoming technology-facing rather than relationship based.

The talk then shifted to discussing Bermuda itself and its benefits as a domicile.

For Brad Adderley, a partner with law firm Appleby, it was a no-brainer. “How could you not choose Bermuda?” he asked. “Bermuda is the hub for so many forms of risk transfer now and I think its rivals have fallen behind.”

Rajeh said that it was important to recognise the role that the Bermuda Monetary Authority (BMA) plays in persuading firms that Bermuda is the right domicile for them to establish an operation.

Reardon added that Bermuda is a “great place to do business” as well as being close to the US.

Kading informed participants of his involvement in helping Bermuda secure equivalence with Solvency II, something which, he believes, the Island deserves and could achieve within months. “Bermuda is a hub dedicated to innovation. Its traditional role as incubator is still strong,” he said.

He was asked about the threat to Bermuda reinsurers from the US regulators who are targeting hedge funds. He replied that there will always be challenges that need facing.

New ideas

The panel was then asked to consider that if the risk transfer process continues to develop and become ever more complex, how would this benefit Bermuda and the industry as a whole?

Kading said that the BMA has always been willing to come up with new ideas and to create the right environment for those ideas to bloom. Lowther added that it is all about striking the right balance.

The pros and cons of consolidation and what it means for Bermuda were then batted around the panel with Kading arguing that consolidation is a sign of market vibrancy. “It’s not a sign of weakness,” he added.

Reardon said that while consolidation may create efficiencies for the firms involved, it will also provide opportunities for newcomers.

Kading said consolidation promoted a diversity of thought and market understanding.

Lowther said it would be interesting to see how it all played out, but Maamoun issued a warning: “History is littered with bad M&A transactions—particularly at this point in the cycle,” he said. “Will all the expectations be realised?”

Faries suggested that, outside of the risk transfer innovation the market currently understands, it was entirely possible that an outsider could enter the market and shake up the place. “They could change the way we all do business,” she said, adding: “I think that we have not yet seen what technology can do”.

Schultz said that any influx of new capital would lead to new companies being formed. “New management will come in and open up new products to new clients,” he said. He cited cyber as one area where new blood could aid product development.

“Some of these big issues will define who will be successful in the new marketplace,” he predicted.

And cyber sparked some of the most absorbing discussions among panel members, with Reardon calling for a “cross-border approach”, a “joint venture” and collaboration between companies in an effort to deal with the cyber challenge.