respects it suggests an era of protectionism, which I think is seeping through the guise of regulatory requirements, but it also looks as if particular regulators are trying to do things with public policy that hint at protectionism. It does not help to diversify and globalise your business if you’re seeing public policymakers trying to protect certain parts.
Richard Lightowler: The ambitions of the group supervision and regulatory equivalence deserve merit but it will be a significant amount of time before implementation works effectively. Companies will be in a period of duplicative regulatory intervention for a period of time until individual regulators cooperate more effectively. There will be a continued heavy burden on the industry.
The soft market has been exacerbated in the commoditised risk area by new capital. The challenge for the traditional reinsurer is to be more innovative around what risks can be underwritten. This will mean more creativity and client-centric behaviour—really understanding client needs and developing bespoke solutions where necessary.
I also believe there are opportunities in the public sector, as a financing mechanism. We will become much more innovative, no longer being just a broker-led or a market-following industry.
Jed Rhoads: Complacency and rate adequacy remain the real issues in the industry. We’ve come through a period when we knew the market was soft. We’re frequently trying to find the bottom of the market, in casualty, in property, in specialty lines. We used to talk about markets where there were segments still with good rate adequacy, but that is no longer the case.
Nevertheless, when losses are low, we are inclined to delude ourselves over time into thinking our business is really profitable and that life is good. I remember 1998, 1999, 2000 when we thought “man, we’re good; we’re making a lot of money”, well nothing had happened, loss trends were declining, there was not a lot of cat activity at that time, then the World Trade Center happened and there was a wake-up call.
We have to be super careful as an industry right now to remain credible, relevant and solvent. If we have another event like 9/11, or Katrina, Rita
14 Bermuda Finance | 2014
“There’s a real challenge for all of us to try and grow demand, which means innovative ways to increase the attractiveness of our products.” James Few
and Wilma, while we’re exercising less and less pricing discipline, that looks to me like the recipe for a train wreck.
We are reporting results that look good year-on-year, but it’s because we haven’t had any big events. I worry that we’re a little too complacent, given we’re operating right on the cusp of pricing adequacy on most lines of business.
Lou Gutzwiller: With the soft market, a big focus remains on cutting expenses. The issue is that sometimes you’re cutting those expenses when you really should be investing in innovation.
Berry: Major market-turning events tend to be preceded by a protracted softening, as we saw with the late 1980s and then late 1990s. We need to be wary of that. The other issue I’ve always worried about is tail risk, and whether we are adequately assessing and rating for what actually resides there.
We discover more and more that we are in a world of extreme volatility, and are judged by our ability to truly understand and harness that risk, but I’m not convinced we fully understand some of the more remote risks to our industry and focus too heavily on the ones we can identify easily now.
What approaches are you taking to navigate a route through the current cycle?
Edwin Jordan: We’ve gone from being a pure property cat writer in Bermuda to redomiciling to Switzerland and as of June we now have a US branch. Richard mentioned a customer-centric approach and that’s
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