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September 2012 Bermuda Re/insurance
“It’s much simpler to have all your complex and big risks underwritten in a small number of places, such as London and Bermuda, because you can ensure the quality is maintained.”
In recent years the Bermuda and London markets have become
increasingly intertwined, with interest in new platforms apparent on both sides of the Atlantic. Charles Dupplin, CEO of Hiscox, Bermuda spoke of a “symbiotic relationship” between the two markets, and the notion of shared intellectual capital. Chris Harris, president CEO of Montpelier Re, concurred, indicating that close links between Bermuda and London had been mutually beneficial, with both markets increasing their international standing as a result of close interaction. As Harris explained, “companies are thinking increasingly globally and, recognising that there are advantages to both platforms, are optimising where they write their global business”.
Today just under half of Bermuda’s Class 4 re/insurers have operations at Lloyd’s, with operations in London providing Island players with a “broader distribution network and access to a wider variety of lines of business”, said Harris. Tatsuhiko Hoshina, CEO of Tokio Millennium Re, spoke of the strength of the London brokers’ network, which provides invaluable access to placements and indications of “where the market is heading and what products reinsurers should be considering”. It seems that Lloyd’s is both an invaluable point of access to international business and a barometer of reinsurance’s direction.
Harris said that Montpelier Re’s decision to establish a Lloyd’s presence back in 2007 was in part motivated by what he termed the “sticky business” of risk—ie, that business likes to stay close to its home market. As he explained, “just by being in Lloyd’s, you see more passing business”. Dupplin concurred, arguing that in terms of markets for reinsurance, there really is no competition for Bermuda and Lloyd’s. “If you want good people to look at your risk, there really are only two markets to consider.” It is this combination of passing business—and a significant amount
of international business beats a path to Lloyd’s’ door—and the strength of intellectual capital in the market, that makes London an unparalleled partner for Bermuda reinsurers.
As Dupplin highlighted, the ability to access human capital at Lloyd’s—something Bermuda players can draw upon to complement their bench of expertise on the Island—is a major draw for those considering a syndicate in the market. “In London, you simply have an amazing pool of talent,” he said. Harris agreed, adding that in a business that relies on a relatively small number of employees “being able to access talent through both platforms has been a significant incentive for us”.
Centrifugal force
This notion of sticky business ties in well with a ‘boots on the ground’ philosophy that has permeated re/insurance circles of late, with Zurich, Switzerland, being perhaps the most obvious recent example. A number of players have established a presence in the Alpine state—much as has been done at Lloyd’s—although for some their presence has been more of a conduit for business than an underwriting hub. As Dupplin indicated, there are “quite a few brass plaques on the wall in Zurich, but it hasn’t really taken off as a market”.
Montpelier Re itself has opened an office in Switzerland and applies just such an approach to its presence, Harris arguing that “in terms of underwriting, we want to have short lines of communication and a central underwriting philosophy”—one that necessarily requires business to be underwritten in Hamilton or London. Nevertheless, a Swiss presence has enabled the firm to access greater levels of ‘sticky’ European business. The development of Switzerland as a conduit for business provides some indication of the reasoning behind Lloyd’s push to establish regional hubs in emerging regions such as Asia and Latin America, as outlined in its Vision 2025 document.
However, not all firms see a local office simply as a conduit for business. Tokio Millennium Re’s strategy is to underwrite business locally, in offices such as those it runs in London, Sydney and Zurich. “If you are closer to the client, the market and the brokers, you are able to have a better understanding of the characteristics of risk and better positioned to write the business,” said Hoshina. “Unless you are on board locally you will simply not be able to get that level of market intelligence.” He said that from a headquarters point of view it is necessary to “monitor aggregations across the whole group, and ensure that underwriting conforms to group risk appetite and that the underwriting technique and approach is consistent among all group
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