Learning lessons from the past

Despite the challenges of the last two years—or perhaps because of them—re/insurance registrations in Bermuda over the last two years have been strong. Last year the Bermuda Monetary Authority (BMA) issued 64 new licences. In 2020, it was 67—a significant acceleration from the 58 in 2019.

However, the number of new class 4 re/insurers was relatively low—just a handful in the last couple of years and what might make the new class of 2020/21 stand out is not the number of them but how long they last.

Intelligent Insurer caught up with some of the new players, as well as others in the industry, to discuss the Bermuda market and where it’s going. The panel comprised Brad Adderley, Bermuda office managing partner and the re/insurance global sector leader at law firm Appleby; Adam Champion, executive vice president capital markets and reinsurance at global reinsurance, wholesale and specialty broker Ed Broking—one of several intermediaries launched in recent years, including 14 registered in Bermuda in 2021; Prashanth Gangu, chief operating officer and president of Insurance and Services at SiriusPoint, which launched in February 2021, but with a legacy going back decades (and £3 billion in initial capital) as a result of its formation through the merger of Third Point Reinsurance and Sirius International Insurance Group; Peter Horrobin, co-founder and co-CEO of the D&O specialist managing general agent (MGA) Banyan Risk, launched in July 2020; and Peta White, president of class 4 reinsurer Vantage Risk, launched in 2020, and having completed its second renewals in January 2022.

Quality not quantity

Adderley said the number of new reinsurers in the last couple of years pales next to the number in 2001, when there was a flurry.

“That was a real class,” said Adderley. “Six or seven were formed between October and November and there were seven weeks where startups raised $1.2 billion.” In other years, such as 2007, new reinsurers also flooded into the market.

What the 2020/21 class of launches lacks in volume, however, it makes up for in variety. In 2001, there was little to distinguish between the companies.

“They were all very similar. Very much general business insurers with the same amount of capital, similar staff, no insurance-linked securities (ILS) platform,” said Adderley. Most didn’t have a Lloyd’s platform at the start, but built or bought them over the years.

Today, the new companies vary significantly. Looking at ILS alone, some have ILS platforms; some don’t—for some, it’s core to the business. Some, like IQUW, with its Bermuda operation approved by the BMA in June 2021, launched with a Lloyd’s platform from the off.

They’re also writing a range of business.

“They are more specialty-focused, and they are not all coming to the market exactly the same way. Each firm is choosing the right tool for it to focus on its business,” said Adderley.

SiriusPoint, for example, is essentially focused on becoming a platform for specialist MGAs, handling the back end infrastructure.

“There’s plenty to do at the back end in terms of dealings with the ratings agencies and regulators and managing the balance sheet, capital position and reserves,” said Gangu. “A lot of time is spent on the back end stuff, whereas an MGA model lets you focus a lot more on the customer and the problem you’re trying to solve, come up with innovative products and truly invest in the technology to create a differentiated model.”

Moreover, the traditional focus was on property has shifted.

“The big play in this market from a structural perspective is to my mind more long tail and specialty lines,” added Gangu.

“It’s horses for courses. Whereas before everyone was on the same course, now it’s definitely more focused,” Adderley added.

Here to stay

On one hand, that’s reflective of changing times. Despite the variety, there are some new norms. While there might be different approaches to ILS, for instance, it has become standard in the industry.

“Some folks are doing it more aggressively than others, but everybody agrees you need some sort of a third party vehicle for additional capacity and fee generation to take advantage of their underwriting expertise,” said Champion.

“It’s part of the launch discussions and very much expected that they will have that as another tool in their shed.”

The emphasis on technology is a common theme for many. It’s at the core of Vantage’s value proposition, according to White. “It’s not just technology bringing efficiencies but thoughtful insights from data and analytics for our own exposure and risks and those of clients,” she said.

This is not wholly a break from the past.

“I’m sure the class of 2006/2007 said the same thing because technology is always moving,” said Champion.

What may mark out the class of 2020/21 is what has driven the creation of its members. For once, the influx isn’t simply the result of a year of big losses and a surge in rates. Instead, for many, it’s been a long time coming.

“What’s different from previous classes is the dynamic of the market that’s led to the hardening market,” said White. “This isn’t a startup class following a single event such as the World Trade Center attacks or Hurricane Andrew, but it’s after many years of losses that led to the current hardening market.

“You see the cat losses and hurricane but also under- and non-modelled perils such as wildfire. You see loss creep following those years and social inflation on the casualty side.”

That might make it a more sustainable hard market, White argues. It may also make more sustainable businesses.

Combined with the investments in technology and a more selective approach to underwriting, there’s hope many may escape the boom and bust of the traditional insurance cycle.

“This class has a much better chance of being sustainable in large numbers compared to previous classes, where a lot initially succeeded but then fell by the wayside,” said Gangu.

“The setup of these might mean there is a different outcome as a group from those before.”