September 2012 Bermuda Re/insurance


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Bermuda Re/insurance is published by Newton Media Limited. Kingfisher House 21-23 Elmfield Road BR1 1LT


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Editor’s note New forms


n examination of 2012 wouldn’t be complete without a nod towards the new


forms of capital that have characterised Bermuda reinsurance. PAC Re, SAC Re, Third Point Re, sidecars, collateralised reinsurance, insurance-linked securities (ILS) and industry loss warranties—it is hard to deny that there is an evolution going on within the industry. And it is predominantly a Bermuda phenomenon, with special purpose insurer (SPI) legislation introduced by the Bermuda Monetary Authority back in 2009 encouraging a rising tide of alternative forms of reinsurance.


Viewed initially as a competing product—with charges of cannibalism levelled at the alternative sector—reinsurers are increasingly involved in the space, embracing transformers and close interaction with the capital markets as a welcome addition to their group capabilities. While alternative forms of reinsurance have undoubtedly had an effect on traditional reinsurance pricing—with additional capacity in the property cat space in the form of ILS and sidecars helping to dampen rate rises on line—few in the sector like the idea of being left behind. A host of players now boast sizable alternative portfolios and it seems unlikely that the push into this space is going to go away any time soon. The view appears to be: ‘better a complement, than a competitor’.


An accommodation is evidently underway, with some predicting that ILS-type products will account for as much as 40 percent of property cat business in a few years’ time. Bermuda’s focus on property cat will necessarily mean that such forms will become an increasingly prominent part of the Island’s reinsurance landscape. The likes of Nephila Capital, Catco and Horseshoe Group have blazed a trail in Bermuda’s ILS market for some time, but many are now predicting that ILS subsidiaries, working under the umbrella of their group, will take the ILS product and the involvement of the capital markets to the next level.


The question then becomes: can capital market interest, and that of sponsors, be sustained?


The indications are they can. While investment returns may yet pick up in the wider capital markets, investors are always on the hunt for non-correlated risks. ILS represent just such a product and as the market becomes more transparent and more readily understood, investor appetite is only likely to grow. For sponsors, the ability to diversify their reinsurance placements and to have portions of their portfolio collateral-backed will remain attractive.


ILS-type products are leading what appears to be a new class of reinsurers in Bermuda.


It will be interesting to see how they bed in and whether the current evolution has the makings of a revolution.


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