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Bermuda Re/insurance Roundtables


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left some business as the marketplace pricing has changed, but the return on equity on that business remains incredibly attractive, and it hasn’t been that volatile.


Few: We’re running businesses that are diversified globally, with Bermuda a specialist market and the world’s leading market for excess of loss products. As Marty says, it is particularly adept at property, but there’s also plenty of capacity here for excess of loss products that don’t necessarily need to be sold close to the customer. This is a real centre of excellence for that kind of business.


Rentrup: A stand-alone company created in Bermuda which might


have outside shareholders on the hunt for returns, cannot be successful by writing property catastrophe only. Catastrophe reinsurance requires significant capital to support the business and it would be very challenging to produce the returns investors are expecting. This is also reflected in the market—there is no Bermuda standalone company writing property catastrophe business only. All market players have diversified into other lines of business, merged with other players or left the market.


Cooper: Pure property catastrophe is turning into much more


of a fund management structure where it’s not just your own capital that you’re managing, it’s third party capital, and that can help you get the kind of returns that you need. The problem


with excess of loss business is the interest rate environment we’re in, and particularly with excess casualty, the liability reserves on that business. If you look at your cost of capital of holding those liabilities down relative to the interest rates you’re earning—if you’re earning 2 percent and the cost of capital is 12 percent, that difference over a long period is challenging. There’s a lot of room for improvement in that market.


Finally, is it a tough writing specialty business in today’s environment?


Driscoll: There’s significantly more competition in the specialty segment than there was a year ago, certainly five or six years ago. There’s more interest in it, with more people chasing a pie that hasn’t significantly increased. We’re focused on non-cat exposed low frequency, high severity classes such as aerospace. They’re probably our best performing markets at present, although major losses have not occurred in those areas for some time.


Specialty is a concept that’s growing sideways rather than vertically.


But we like the class, we’ll continue to be as active as we can in trying to grow our footprint in specialty, but some of these classes are pretty difficult to underwrite, establish a costs of goods sold, and manage your true exposure, so you’ve got to navigate these waters carefully. There are good returns, but these are volatile classes.


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