Bermuda set to become global centre of specialty re/insurance: ABIR

Investors behind new lines of business, including cyber, terrorism, political and US mortgage risk, are handing Bermuda a flag to plant as the leading jurisdiction of speciality re/insurance, John Huff (pictured), president and chief executive officer of the Association of Bermuda Insurers & Reinsurers (ABIR), told Monte Carlo Today.

The Island remains dominant in natural catastrophe re/insurance and it aims to be the centre of climate risk finance, but the headline now concerns specialty products, Huff said.

“The book on cyber has not been written yet,” he said, but the hardening market is driving a move away from “silent cyber” and towards a standalone product. The ABIR members who are entering that market are going “narrow and deep”, he added, not only for their product offerings but also for the aggregation issues tied to those.

Cyber may be a new “bright spot” for Bermuda re/insurers, but terrorism risk continues to be so, he said. The need for such coverage has heightened amid the Russia-Ukraine conflict and Bermuda now covers about one-third of the UK Pool Re terrorism risk, he added.

A third area where Bermuda’s re/insurers have become increasingly dominant—with a 50 percent market share—is US mortgage risk.

Mortgage insurance is particularly important for communities where a home is the most valuable asset.

“In the US, if a purchaser does not have 20 percent down or a home purchase, they’re required to have mortgage insurance. It’s a significant public policy attribute to allow people to get into home ownership so Bermuda proudly supports that market,” Huff said.

ABIR celebrates its 30th anniversary next year, having been established one year after Hurricane Andrew. That event kick-started Bermuda’s move away from the ‘gentleman’s agreement’ style of coverage to the use of sophisticated data.

“Our legacy firms are still there in the nat cat space. It’s our bread and butter, it’s our strength, and we know we do it better than anyone because our members have teams on board that can interpret the models in a much more sophisticated fashion than the modelling firms can,” Huff said.

“You’re seeing more and more descriptions of models, particularly related to climate issues, but they still require an interpretation by underwriting experts.”

Huff referred to a recent report that presents the “manmade crises” that are driving some of the concerns in the nat cat space: legal system abuse, claims fraud, and regulatory interference are the root causes of most market instability.

ABIR produced the report jointly with the American Property Casualty Insurance Association, the Reinsurance Association of America, and Robert Hartwig, clinical associate professor of finance and director of the Risk and Uncertainty Management Centre at the University of South Carolina.

Insurers are facing increasing challenges in managing risk due to government mandates and interference, Huff said, adding that insurers must be given flexibility to collect adequate premiums reflective of the exposure.

He concluded that, notwithstanding Bermuda’s continued dominance of the nat cat market—which includes wildfires and earthquakes—new capital is heading increasingly to specialty lines, and the new startups in Bermuda are a clear indication of that trend.