CLIMATE foR
REInSURERS RIPE
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Delroy Alexander group managing editor
Bermuda Re/insurance
If there is one man who can make the re/insurance industry sit up “Lessons from the recent crisis are still being digested,” says Butt.
and take notice when he speaks, it is Michael Butt. “I don’t know to what extent other financial sectors are going to be
The Axis Capital and Association of Bermuda Insurers & Reinsurers
affected, but the re/insurance sector is going to have to be substantially
chairman is not afraid to tackle the big issues. From protectionist US
more disciplined. We can’t continue to see the swings that we have.
measures aimed at slashing the advantages of offshore jurisdictions,
Dramatic rate changes are not good for our clients and we have to
such as Bermuda, to climate change, his is among the industry’s most
improve our returns.”
influential voices.
Even from a distance, it is easy to see that the topic of the sector’s
That’s why it resonates all the more when he says that the general public return on equity (RoE) and financial performance volatility is close to
was right to criticise the industry after the recent financial collapse. Butt’s heart.
“It was fair criticism,” says Butt, in his typically languid style. “It’s
“It [RoE] has got to be at least 10 percent above the cost of money,”
only my view, but I believe we could and should have done better.”
adds the ABIR chairman. “Let’s say that the cost of money has been
The ABIR chairman’s assessment of the sector’s performance during
running at four to five percent for the last couple of years, you’re
the recent financial turmoil continues in equally forthright terms.
talking about 14 to 16 percent after tax, so let’s say a return of between
10 to 15 percent. The cost of money being as low as it is through the
“If you look back from where we’re at now, the criticism that the
cycle, in order to attract the capital, you need to give those types
general public levelled at the financial services sector—which includes
of returns. Performance between the high level and low level in
re/insurance—is justified. It is clear that we did not set credible
international controls on vehicles at the time, when we should have
our industry is very significant. If you can compound 14 percent per
done. As a result, when the crisis hit, there was nobody there to look
annum, then you are giving your shareholders a very fine return, but
at and tackle the challenges.”
not many are consistently doing that. We as an industry have to do
a better job.”
That inability to adapt in advance of the financial storm now has the
industry facing sweeping regulatory change as Solvency II looms and And if you want a good example of what Butt is talking about, just
pressure is increasing for stricter guidance at the federal level in the US. look at Axis, the company he chairs.
Bermuda Re/insurance . September 2009 29
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