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STORMY WEATHER AHEAD Can Bermuda withstand the global economic downturn? Finance Minister saysthe Island will stay the course “steady as she goes.” Full budget analysis: Page 7

NEW YORKVERSUSBERMUDA?

ALL THERESULTS &ANALYSIS

KADING:‘TAX HAVEN’VIEWS

12

15

5BERMUDAINSURANCEQUARTERLY© 2009 Bermuda Media in association with

A p r i l 2 0 0 9

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“We have completed one costreduction initiative on timeand on budget and have iden-tified further ways to delivercost effective support to ourunderwriters that we will im -plement in 2009. Even at whatwe expect to be the lowestpoint of the insurance cycle,we expect to report an ROE inthe low to mid teens for 2009.”

— Mike McGavick, CEO of XL Capital

“Global presence and risk-taking discipline areour sources of strength, and we are using them toour ad vantage. In the quarterwe began to improve ourprice-to-exposure from firminginsurance prices and gain mar-ket share in certain classes fromweakened competitors. Whilethe recessionary conditions areformidable, we are encouragedby Government efforts to stim-ulate the economy.”

— Evan Greenberg, Chairman and CEO ofACE Limited

“The insurance markets arelagging the reinsurance market.We continue to believe the in -surance markets will begin torespond positively from the mid -dle of this year onwards. We havenot, cannot and will not aban-don our high underwritingand operational standards,which, in some areas, meansthat we will continue to shrinkour underwriting activity and our exposures.”— John Charman, AXIS Capital President & CEO

“The results of our January 1 renewals reflect animproving pricing environment.With our well-capitalised bal-ance sheet, strong ratings at allof our operating subsidiariesand continued investments inour people, infrastructure andproduct offerings, we are wellpositioned to execute on theopportunities we see in 2009and beyond.”

— Neill Currie, RenaissanceRe Presidentand CEO

BERMUDA INSURANCEQUARTERLY

Consulting EditorRichard Whitaker

Art DirectorPaul Shapiro

Contributing EditorChris Gibbons

Director of MarketingLissa Fisher

PublisherIan Coles

Published by Bermuda Media, Suite310, The International Centre, 26Bermudiana Road, Hamilton HM 11,Bermuda. Postal address: PO Box HM2032, Hamilton HM HX, Bermuda. Tel:292-7279 Fax: 295-3189 Email:[email protected]. Web: bermudamedia.bm.Printed in Canada.

Published four times a year in associa-tion with PricewaterhouseCoopers.

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BIQ

Ironshore’s new environmentalunit has hit the ground running,announcing a series of key agree-

ments.Ironshore Environmental, a

n e w l y - f o r m e d d i v i s i o n o fBermuda-based Ironshore Inc,announced that it had placed itsreinsurance treaty with NationalIndemnity as the lead, alongwith Harbor Point, Arch andothers. It separately entered intoan arrangement with NationalFire and Marine InsuranceCompany, a member of theBerkshire Hath away group ofinsurance companies, for longer-term environmental insuranceplacements.

Joe Boren, CEO of IronshoreEnvironmental, noted, “Certaintransactions that require longerterm environmental insurance alsodemand the highest financialstrength in the insurance carrier.The arrangement brings our expe-rienced environmental underwrit-

ing team together with the finan-cial strength of a BerkshireHathaway group company. Thispartnership is exactly what themarket has been asking for.”

Under the arrangement, Iron -shore will market, engineer andunderwrite all risks with a term offive years or more.

Meanwhile, Ironshore Environ -mental also announced that it hadformed a Surety arrangement withthe United Nations InsuranceAgency Inc, of Mayfield Heights,Ohio. United Nations is the

underwriting administrator forEvergreen National Indemnity.

And Ironshore has formed ajoint venture with C V Starr & CoInc to create Iron-Starr ExcessAgency Limited.

Iron-Starr Excess will act as aspecialty lines insurance and rein-surance managing general agencyand will be domiciled in Bermuda.The company said Iron-StarrExcess would write catastrophicexcess casualty insurance products,targetting Fortune 2000 and otherclients purchasing cat excess cover-

ages. Policy limits up to $75 mil-lion will be issued.

“This partnership enablesIronshore to enter the excess casu-alty market with additional back-ing and support to offer larger lim-its, consistent with the needs ofthese clients,” said Kevin Kelley,Ironshore’s CEO. “This arrange-ment will assure customers thatduring these challenging times,they have a syndicated alternativethat understands their needs andhas the experience to be a long-term solution.”

THE QUOTES OF THE QUARTER

V o l u m e 5 , N u m b e r 2A p r i l 2 0 0 9

Ironshore enviro team accounces agreementsPARTNERSHIP IS ‘EXACTLY WHAT THE MARKET HAS BEEN ASKING FOR’

[ 1 ]

RenaissanceRe has extended its employmentagreement with President, CEO and Director NeillCurrie until February 22, 2014. Mr Currie’s prioremployment agreement was scheduled to expire onFebruary 22, 2010, subject to automatic renewalsfor one-year terms. Mr Currie, a co-founder ofRenaissanceRe, has served as Chief ExecutiveOfficer since November 2005. He will also continueto serve on the Company’s Board of Directors.

Chairman James MacGinnitie said: “This long-termagreement secures continuity of leadership forRenaissanceRe under an individual who has posi-tioned our business for long-term success. Neill hasboth maintained and built upon the superior under-writing strength, modeling expertise and reputation forreliability that have long distinguished Renai ssanceRein the marketplace, and has developed a team to prepare for our current needs and future initiatives.”

RenRe extends Currie’s contract

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NEWS REVIEW

Bermuda-based firms are busypicking up the pieces as AIGfalls apart. As uncertainty

mounts about the future of theinsurance giant that has so farreceived more than $173 billion inbailout funds by the US Gov -ernment, many of the company’stalented teams are leaving to joinrival companies — and Bermudacompanies are reaping the benefit.

As one local reinsurance execu-tive, who asked not to be named,put it: “They are leaving a sinkingship. Their stock options havegone up in smoke — what do theyhave to lose? If they joined a recentstart-up company like Ironshore,they stand to recoup some of theirstock losses if and when the com-pany goes public. For the compa-nies it’s a golden opportunity tohire some really good people if notat a cut-rate salary, then at least adecent rate.”

The move that raised thebiggest eyebrows was Ironshore’scapture of Kevin Kelley as theirnew CEO to replace Bob Deutschwho is to become President. MrKelley was CEO of profitable AIGunit Lexington Insurance Com -pany, which he had helped turninto the world’s largest excess andsurplus lines insurer.

At the time Mr Deutsch calledit “a world-class coup” and madeno bones about his and Ironshore’sambition: “Attracting Kevin Kelley,one of the most talented insuranceexecutives in the last two decades,significantly increases our ability totake advantage of the changinginsurance marketplace. We want toget into all of the lines of businessLexington is in. There are areasthat are ripe for another player.”

More AIG execs followed inthe New Year.

In January, Joe Boren and JohnO’Brien, key members of AIG’shighly-respected environmentalteam, joined Bermuda-based Iron -shore’s new Environmental In -surance unit. Mr Boren had spent13 years at AIG and been Chair -man and CEO of AIG Envir -

onmental. Mr O’Brien was Exe -cutive Vice President of AIGEnvironmental’s Commercial andMiddle Market divisions.

Shaun Kelly, CEO ofIronshore’s US operations, couldbarely disguise his glee in a compa-ny statement: “Hiring Joe and Johnis a huge win for Ironshore as itenables us to further diversify andexpand into the environmentalinsurance arena. This is an areathat we have been actively lookingto expand into. Under Joe andJohn’s leadership, I am confidentwe will quickly develop as a pre-mier industry presence in thisniche specialty market.”

The same month, Geoff Smith,the former President of AIG CatExcess Liability, was namedWorldwide Head of Ironshore’snewly-launched Excess Liabilityfacility, and Steven England, ex-President of AIG Landmark, wasappointed Executive VicePresident responsible for runningIronshore National Branch, itsnew US Property & Casualtyunderwriting operations based inSt Louis, Missouri. Prior to head-

ing up AIG Landmark, Englandhad been Regional Vice Presidentfor AIG’s Commercial InsuranceGroup in Houston, Texas.

In February, reinsurer ValidusHoldings announced the expan-sion of its Global Technical LinesDivision in the US, UK and Asiaand appointed six specialist under-writers in each region — all formerAIG men.

In December it named DavidHawksby, the former President ofAIG’s Global Energy PropertyDivision, to head up its newValidus Underwriting RiskServices Inc (VURS) in New York.

New underwriters hired by thenew unit included ex-AIG manKudret Oztap, as Senior VicePresident responsible for underwrit-ing in the US, and Stephen Sykesand Stephen Tresadern, Senior VicePresidents of Underwriting RiskServices Ltd, Global TechnicalLines Division. Mr Sykes is a for-mer vice-president, Oil andPetrochemical, Energy Division atAIG UK Ltd, while Mr Tresadernwas former corporate manager,Energy at AIG UK Ltd.

Ash Khan, a former President,Global Marine & Energy, PacificRim at AIG, joined the Validus groupas Executive Vice President, GlobalTechnical Lines Division of TalbotRisk Services Pte Ltd in Singapore.

The team will be backed by twoLondon-based engineers, PhilipWalker and Andy Goddard, bothpreviously with AIG UK Ltd.

Bermuda-based Lloyd’s special-ty insurer Hiscox, which hadalready hired at least three AIGexecutives over the last fewmonths, appointed Steve Silver -man to head up its new US inlandmarine business. Silverman hadbeen Assistant Vice President andProduct Line Manager for AIG’sLexington Insurance’s InlandMarine and Specialty Propertybusiness in the US.

Meanwhile John Williams, theformer Senior Vice President ofOperations for AIG’s SmallBusiness Division, joined Torus,the Bermuda technical lines insur-er and reinsurer launched last yearby former XL Insurance CEOClive Tobin, as Global Head ofBusiness Operations.

Bermuda firms pick up AIG piecesSTOCK OPTIONS ‘GONE UP IN SMOKE’ AS STAFF LEAVE ‘SINKING SHIP’

[ 2 ]

AIG plans to form a GeneralInsurance holding company,including its CommercialInsurance Group, ForeignGeneral unit and other propertyand casualty operations, to becalled AIU Holdings with a boardof directors, management teamand brand distinct from AIG.

The restructuring could havefar-reaching consequences byseparating it from AIG’s debt,and bad investments associatedwith AIG. More important, itcould help AIG retain keyemployees and customers. Thenew unit’s capital structure willnot be tied to AIG and will be ina stronger capital position thanmost competitors which are try-ing to lure away customers,according to analysts. The new

company would rank as theworld’s largest property/casualtycompany.

Kristian P Moor, currentlyPresident and CEO, AIG PropertyCasualty Group, will be Presidentof AIU Holdings Inc. Nicholas CWalsh, currently President andCEO, AIU, will be Vice Chairmanof AIU Holdings Inc. A Chairmanwill be named at a later date.

“AIG is executing one of themost extensive corporaterestructuring programmes inhistory,” said AIG Chairman andCEO Edward Liddy in a compa-ny statement. “The formation ofAIU Holdings Inc will help pro-tect and enhance the value ofthese key businesses, andposition them for the future asmore independently run, trans-

parent companies.”When formed, AIU Holdings

Inc will be a unique leading fran-chise with more than 44,000employees and 500 productsand services serving 40 millioncommercial and individual cus-tomers in 130 countries andjurisdictions.

Eventually, the new unit mayraise additional capital through apublic share offering or by rais-ing private capital.

The new structure could freeAIG’s global commercial-insur-ance operations from the beingtainted by growing losses inAIG’s other business units. If thenew entity were sold or spun offin an initial public offering,current AIG shareholders will beeligible to share in the profits.

AIG rebrands commercial insurance business


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NEWS REVIEW

XL still in the game after ‘toughest year’COMPANY TO CUT A FURTHER 10% FROM GLOBAL WORKFORCE FOLLOWING MASSIVE LOSSES

Embattled Bermuda-based insur-er XL Capital said it plans tostay in most lines of commercial

insurance despite “the toughestyear in XL’s history” that saw arecord loss of $2.63 billion for2008 and agency downgrades.

CEO Mike McGavick said XLwould cut a further 10% from itsglobal workforce and would exitsome lines to prevent the company

from losing client confidence andentering a fatal downward spiral.XL is currently rated ‘A’ with a sta-ble outlook by A M Best and ‘A’with a negative outlook by S&P.XL’s massive loss compared to netincome of $206.4 million for 2007.

In an interview with Strategic -RISK magazine, Mr McGavicksaid: “[Last year’s] results reflectforays into financial guarantee

business and a investment portfo-lio that is not well designed and wehave work to do to fix that.”

He said XL’s plans include “ameaningful reduction in grosswritten premium for 2009,” butexpects the company “to be presentin practically all” commercialinsurance lines.

He added that XL would cutback on lines that do not meet

“long term hurdle rates” and lowprices would also force the insurerto focus on short tail businesswhere there is better opportunityfor adequate rates.

To date, clients have withdrawnfrom the company’s excess casual-ty business, written out of the USand Bermuda, and the US publicD&O book.

Mr McGavick said: “No one ishappier to see 2008 behind us ormore excited to have 2009 beforeus than we are at XL. 2008 hasbeen the toughest year in XL’shistory, albeit one in which wehave put a number of issuesbehind us and emerged on a solidfooting. Not only did we dealwith the SCA overhang, we tookmajor steps to de-risk our invest-ment portfolio and simplify ourbalance sheet.

“The $400 million investmentportfolio restructuring charge wehave chosen to take in the fourthquarter of 2008 allows us to accel-erate our de-risking activitiesthrough selective and targetedsales, thereby lowering our expo-sure to credit market volatility. Ournon-cash goodwill charge of $990million removes another distrac-tion, while having no impact onour rating agency or regulatorycapital or tangible book value andleaves our balance sheet strong andeasily understood.”

He said: “We have completedone cost reduction initiative ontime and on budget and haveidentified further ways to delivercost effective support to ourunderwriters that we will imple-ment in 2009.

“We are becoming again an XLwith the simple and defining mis-sion of being a global provider ofspecialty property and casualtyinsurance and reinsurance throughsuperior, technical underwriting.”

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‘No one is happierto see 2008behind us’


NEWS REVIEW

New York threat to Bermuda?ISLAND IS NEW TARGET ‘AS REINSURERS SURPASS LONDON IN UNDERWRITING OUTPUT’

[ 5 ]

Bermuda isn’t just facing a threatfrom US lawmakers bent onending the Island’s tax advan-

tages. Now, New York City has setits sights on winning reinsurancebusiness from the Island andLondon.

New York Superintendent ofInsurance, Eric Dinallo, recentlytold National Underwriter maga-zine that “major top-end brokers”are interested in doing business ona resurrected New York InsuranceExchange to boost market capaci-ty and keep capital from flowingoffshore.

Governor David Paterson sup-ported the idea. At a Lloyd’s din-ner last year he stated: “We haveprivate equity funds and hedgefunds and other investment fundsthat might be eager to place theircapital in the insurance businessright here in New York. Anexchange would provide such anopportunity. This would be com-plementary to what Lloyd’s doeson its side of the ocean.”

The exchange could create newcapacity for hard-to-place risks —such as terrorism — and boostNew York’s position as a dominantplayer in the insurance world,Governor Paterson noted.

The original New YorkInsurance Exchange was created in1980 in response to concern thatthe significant growth of the insur-ance industry during the mid-1970s would result in premiumdollars flowing to internationalmarkets having a greater capacityto write high-risk insurance.

But instead of becoming a rivalto Lloyd’s, the NY Exchangebecame something of a dumpingground for less desirable business.

Now, according to Forbes.com:“If Lloyd’s was the market to beatin the early 1980s, Bermuda is thenew target. In the last two decades,reinsurers based there have sur-passed London in underwritingoutput.

“Their secret weapon is lowtaxes. Rating service Fitch esti-mates Bermuda’s reinsurers pay an

effective income tax rate 15 per-centage points less than US-basedcounterparts. Given New York’snatural advantages as a financialcapital it doesn’t have to mimicBermuda to win business, it mere-ly has to narrow the tax gap,according to Dinallo.”

Forbes says while US insurersmay be attracted by the concept, itis debatable whether New York can

attract a critical mass of outsidecapital from hedge funds and oth-ers amid the current credit crisis.The lure, it says, is the state’s 2%premium tax on local insurancetransactions.

“It remains a great potentialalternative to Bermuda,” MrDinallo told the annual Property-Casualty Insurance Joint IndustryForum in February.

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Finance Minister Paula Cox’s“tenderness in tough times”Budget received broad support

from Bermuda’s reinsurance sector— although business leaders areconcerned about the doubling ofGovernment debt to $1 billion.

Predicting the economy wouldmake a slow recovery in 2010,Minister Cox said Governmentwould provide “tangible assistanceto bolster Bermuda’s people andbusinesses throughout the eco-nomic downturn, even if it is not abillion dollar rescue package.”

The good news for businessesin Minister’s Cox’s February 20statement was that payroll taxwould remain at 14% and therewould be no additional taxes foreither employers or employees.

She said: “In the current eco-nomic conditions, it would becounter-productive for Govern -ment to decrease the stock or flowof funds in the private sectorthrough increased taxation. Gov -ernment’s main objective in thisperiod of economic challenge is tofacilitate and stimulate economicactivity wherever possible, in orderto sustain employment levels andhousehold incomes.”

Defending the decision to dou-ble Bermuda’s debt ceiling to anunprecedented $1 billion, theMinister said Government wouldbe keeping $250,000 as an emer-gency “cushion” to boost the econ-omy if it flags further.

She said: “[This is] not to beused to cover Government opera-tional expenditure or capitalinvestment outlays, but for anextraordinary and strategic res -ponse, should it be required, to anysubsequent systemic threat or riskissues to our economy.

“While we hope not to have anyneed to incur additional debt tocover any systemic risk, Gov -ernment must hope for the bestand plan for the worst.”

Ms Cox acknowledged: “Thesetimes are not ideal for Bermudaand the global community. Yet wehave the opportunity, the where-

withal and the drive to do the nec-essary. Bermuda as our ship ofstate will stay the course — steadyas she goes — as we weather thenumerous economic storms.”

David Ezekiel, Chairman of theAssociation of Bermuda Inter -national Companies (ABIC),which represents more than 130international companies incorpo-rated in Bermuda, called it “animportant budget as it comes at atime when Bermuda and its peopleare facing unprecedented chal-lenges, the full scope of which arestill not clear.”

He added: “Holding the line ontaxes, cutting back on expenses andbeing prepared for a further mid-year worsening of the economicsituation were all key factors, andthese were all addressed.”

While the business communityhas expressed concern about the $1billion debt ceiling, and the deci-sion to postpone annual paymentsof current debt in 2009/10, MrEzekiel said they assumed andhoped these measures would beimplemented only if necessary.

“We are comfortable thatGovernment will use the increasedborrowing limit with prudence and

specifically to cope with the cur-rent environment,” he said. “Weare also supportive of cost reduc-tions in all areas — and we encour-age Government to ensure thatthis remains in sharp focus in thefuture,” he added.

The Budget also got a “thumbsup” from the Bermuda Inter -national Business Association(BIBA), even though it receivedjust over half the $5 million infunds it had requested fromGovernment.

CEO Cheryl Packwood said:“To fund our needs and develop acushion for unexpected systematicshortfalls, Minister Cox has, in ouropinion, successfully adapted andtailored to Bermuda the wisestchoices made by other govern-ments in dealing with far harshereconomic crises than ours.”

She added, “Domestically, werespect that Bermuda’s Govern -ment has rightly focused not juston encouraging sustainability ofthe Island’s business community inthese turbulent times, but also onensuring that all Bermudians areable to participate in any successeswithin the international businesssector. Government has also

offered necessary encouragementand careful prodding to interna-tional businesses, so that Bermudais more than just a great exampleof capitalism, but it is also anexample of a truly progressive andinclusive society.”

Ms Packwood said: “Currentwidespread economic crises andrelated problems are now high-lighting the transparency and gov-ernance weaknesses in many of theoffshore jurisdictions that are tradi-tionally viewed as our competition.Additional funding would haveafforded us a strong opportunity toaggressively move forward andhighlight Bermuda’s strengths andenhance interest in our Island asthe leading offshore jurisdiction forcompanies and individuals seekinga transparent, well regulated juris-diction with nothing to hide.

“However, receiving the samebudget allocation as last year doesallow us to continue to focus onthe areas that were previouslyidentified, and retain the recogni-tion factor that we have worked sohard to create.

“Bermuda has a remarkable his-tory of growth and success ininternational business that thisbudget allows us to continue tofoster. Past growth and success hasoccurred through a unique andcompelling partnership betweenBermuda’s government and itsbusiness community. There is anindelible spirit of understanding,co-operation and common pur-pose that has enabled the Island tocarefully plan and implement poli-cies that we are confident will helpto promote long-term economicgrowth and sustainability.”

She said Government had care-fully managed its financialresources and contribution to thegrowth of international business,while also working hard to assistthe development of its tourismbase in difficult economic times.

“That management is seen inthe remarkable credit ratings thatBermuda has earned from Fitch,S&P and Moody’s,” she said.

‘Government must hope for the bestand plan for the worst’

Minister Paula Cox: “Bermudaas our ship of state will stay thecourse”

Cheryl Packwood: “Bermuda hasa history of growth and successin international business”

NEWS REVIEW

A budget for stormy timesMINISTER SAYS BERMUDA WILL WEATHER GLOBAL ECONOMIC DOWNTURN. CHRIS GIBBONS REPORTS

[ 7 ]


NEWS REVIEW

[ 8 ]

With a wind of change blowingthrough Washington, could Ber -muda’s reinsurance companies

be heading for the hills — or at leastthe mountains of Switzerland?

As President Barack Obama’sadministration threatens to clampdown on so-called ‘tax havens’ likeBermuda and Cayman, companiesare weighing up the alternatives ifthere are unfavourable political,

regulatory or tax developments.Bermuda-headquartered ACE

Limited has already joined previ-ously Bermuda-based non-insur-ance companies like Tyco,Weatherford and Foster Wheelerin reincorporating its holdingcompany from Cayman toSwitzerland.

Last year Paris Re merged itsBermuda and Swiss companies

into operations based in Zug,Switzerland and Flagstone Remerged its Bermuda and Swisscompanies into a Martigny,Switzerland-based operation witha Bermuda branch, although itsholding company remains on theIsland. Allied World, EnduranceSpecialty, Montpelier Re, AspenRe and Arch are among otherBermuda-based companies who

have established Swiss subsidiariesor opened offices there in recentyears as well as in other low-taxjurisdictions like Ireland.

But could a gradual “Swiss roll”from Bermuda turn into an ava-lanche?

“It’s possible,” said RichardIrvine, a Tax Partner with Price -waterhouseCoopers in Bermuda.“The legislative threats are outthere but I think a lot of people areadopting a wait-and-see attitude.If it were a slam-dunk we wouldhave seen more of the insurancecommunity making the move.Most companies have gonethrough the analysis, have weighedup the pros and cons and knowwhat the local and external triggerpoints are. They will monitor thosetrigger events and when and if thoseoccur they will act accordingly.”

He said one of the benefits ofmoving to Switzerland is that a US-Swiss tax treaty exempts Swisscompanies that reinsure US-basedrisks from US federal excise tax ongross premiums paid. Bermudacompanies that reinsure US risksare subject to the tax. There arealso withholding tax benefits interms of interest or dividends paidout of the US to a Swiss companythat are subject to a tax ratebetween 5–15%, compared to the30% tax from Bermuda.

Announcing ACE’s move lastyear, Chairman and CEO EvanGreenberg said it would give the

COMPANIES ASSESS THE EFFECT OF US ‘TAX HAVEN’ CLAMPDOWN THREAT. CHRIS GIBBONS REPORTS

Time to head for the hills?

‘The legislativethreats are outthere but I think alot of people areadopting a wait-and-see attitude.If it were a slam-dunk, more wouldhave moved’


company “better strategic flexibili-ty, a solid legal and regulatoryenvironment, and improved abilityto manage our capital and ourbusinesses” and “ the security of anetwork of tax treaties.”

There are other non-tax reasonsfor moving to Switzerland — ithas none of the restrictions ofspace and workforce that Bermudahas, and offers ready access to theEuropean markets. FlagstoneChairman Mark Byrne said thecompany’s Swiss merger offered “asolid, single capital base to support[our] reinsurance business, whilestill offering a choice of eitherBermuda or Swiss underwritingaccess so as to participate fully inboth the important Bermuda mar-ket and the global markets servedin Switzerland.”

But Mr Irvine noted: “The flipside to that is that Swiss operatingcompanies are subject to federaland canton taxes of between 17and 30% on income attributed tothe Swiss company. While thereare no taxes on dividends paidfrom a Bermuda company, divi-dends from Swiss companies carrya 35% withholding tax with sometreaty reductions depending on taxresidency.”

Mr Irvine pointed out that theother big potential downside isthat Switzerland is also namedalong with Bermuda, Cayman and37 other jurisdictions on the StopTax Haven Enforcement Bill cur-rently before congress.

“While there are bills that pro-vide exceptions for treaties soSwitzerland would be somewhatprotected, a number of them listSwitzerland as a tax haven,” hesaid. “I don’t think the fact that anumber of formerly inverted [non-insurance] companies that came toBermuda have moved to Switzer -land is going to be lost on the UStax-writing committees. The Swissare in the mix just as we are.”

Like many in Bermuda, MrIrvine questioned what constitutesa ‘tax haven’ in the first place. “It’sall relative. Right now the UKwould be a ‘tax haven’ compared toGermany, Japan or the UnitedStates!”

He added: “Everyone who doesbusiness here is taxed the same butthat argument falls on deaf ears.We have been saying for years wehave exchange of informationagreements, we co-operate with

tax authorities globally, but rightnow we’re politically convenientand we have been for a number ofyears.

“ABIR [the Association ofBermuda Insurers and Reinsurers]is actively trying to educate peoplein Congress on the value of thismarket in the whole insurance andreinsurance space and how, if youdo away with this market, it couldharm the US economic recovery.

“There are legitimate concernsabout people who break the law byhiding funds in offshore jurisdic-tions but that doesn’t meanbecause Bermuda has a taxationsystem that works for us, weshould be penalised. Why shouldthe US, UK or anyone else tell ushow to extract tax revenue frombusinesses and individuals? I’m notquite sure why they think theyhave that ability or right.”

[ 9 ]

Richard Irvine, Tax Partner withPricewaterhouseCoopers inBermuda

‘We co-operate with tax authoritiesglobally, but right now we’re politically convenient and we havebeen for a number of years’


Rumours of Bermuda’s demise as a leadingreinsurance centre have been greatly exag-gerated, according to Paul Scope, Chair man

and CEO of Island-based brokerage companyJLT Park.

“There’s a lot of speculation about what thenew US administration may do about offshorejurisdictions and we can’t be complacent.However I do think Ber muda has the infra-structure and the reputation to do better thanothers in these difficult times,” he said. “I stillsee Bermuda as the place for new developments.What’s happening this year is a little differentfrom before. We don’t have new start-ups per se,what we have is build-ons with new teams doingnew classes of businesses bolted onto a businessand a balance sheet that’s already here.

“For example, Argo, which took over PXRE,was just doing property catastrophe reinsurance.Now they’ve taken on a team from XL which isgoing to be writing the casualty and profession-al lines business they were doing at XL.Companies like Torus and Canopius are usingLondon capital and hiring teams that are verywell known in Bermuda and that’s the smartthing to do. It’s still providing extra capacity butit’s not fresh capital because fresh capital is notthere in the market.”

He added: “It’s interesting that all this is hap-

pening in Bermuda which reminds me thatBermuda has an amazing capacity to reinventitself. Despite what you read and hear about theBermuda model not being there anymore becausethere isn’t the capital available, people still wantto do business here, be here and live here.

“The extra capacity in the casualty area toreplace the XL and AIG layers can all be donehere. Once again, a vacuum for capacity appearsand Bermuda has been able to fill it in a nano-second.”

JLT Park — which was formed in 2007 bythe merger of JLT and Mr Scope’s independent

Park brokerage — is bullish enough about theBermuda market to have recently launched areinsurance unit, JLT Re (Bermuda). The newunit will be headed by British-born partnerTony Ainsworth, formerly with JLT Re in NewYork and Associate David Philo, previously withJLT Re in London.

Mr Scope said that starting the unit madesense, given the added scale and resources thatJLT Park now enjoys in Bermuda where it isnumber three behind Marsh and AON in mostmarkets. “I figured that why should we havepeople flying in and out all the time when wecould have a beachhead here?” he said.

Certainly, business is looking healthy fromJLT Park’s perspective despite current marketchallenges. The company placed $500 million inpremiums in 2008 and Mr Scope said: “I thinkthat can easily grow to $1 billion a year with themarket hardening. How much and how quicklyit will harden is a matter of conjecture — but Ican see us getting up to $1 billion through thisoffice in the not too distant future. That’s ambi-tious but now that we have a reinsurance unit, Idon’t think that’s beyond reason.

“So far this year has been up and down. Wehave only just launched the reinsurance unit sothey did not have renewals to place and on theinsurance side we’ve had some successful

[ 10 ]

NEWS REVIEW

DEMISE NOTON THE CARDS

BERMUDA STILL THE PLACE FOR NEWDEVELOPMENTS, PREDICTS SCOPE

Paul Scope, Chairman and CEO of Island-based brokerage company JLT Park PHOTO: CHRIS GIBBONS, KALEIDOSCOPE MEDIA

‘We don’t have newstart-ups per se. Whatwe have is build-ons,with new teams doing new classes ofbusinesses bolted onto a business, and a balance sheet that’salready here’


[ 11 ]

renewals but also some losses associated, par-ticularly with the travails of AIG Cat and XLwhere clients are able to replace that capacitywith less ‘newsworthy’ markets and sometimeswe’ve been able to do that here in Bermuda.We’re right on budget but we would be havinga really good year if that hadn’t happened.”

As Mr Scope noted: “Brokerage is a simplebusiness. We don’t have to buy raw material.We don’t take risk. We’re simply placing busi-ness and getting a fee so unless you over-spend, you will make a profit as long as you’vegot the critical mass to pay your fixed costs.It’s all about setting a realistic budget withrealistic goals and then trying to execute it.You can’t spend hoping that everything’sgoing to be fine in the future.”

He said JLT’s healthy balance sheet —group profits are up and the stock price isrobust — was largely due to group CEODominic Burke trimming the fat when hetook over the post four years ago.

“We made a lot of cost savings at the topend,” he said. “So in these times when every-one else is having to scale back and deal withthose issues, we’re already ahead of the gameand that’s why our stock is doing so well.Where everyone else is getting squeezed,we’re growing.”

Nearly two years into the merger, MrScope said JLT Park had been a “happy mar-riage.”

By effectively cancelling out JLT andPark’s rivalry with each other, he said it hadcreated a unique firm.

“Unlike Marsh or AON, whose Bermudaoffices get supplied by their US offices, wehave to garner our business from independentretail brokers in the US that don’t have officesin Bermuda. Because of the merger of JLTand Park we’re the only ones of any scale thatare doing that. Do we have competitors?Absolutely, but they tend to be small and haveone or two legs of the stool but they don’thave the bench strength that we do, where wecan have people travelling but still have theback-up here in the office.”

For Mr Scope, it had been a case of “backto the future.” He had spent much of2003–07 trying to build a global brand forPark while coping with the exhausting task ofmanaging seven offices in eight time zones.

“Although we had some success growingthe business, it was all internally focused andapart from London and Chicago offices, wecouldn’t get any scale and in this day and ageyou need scale in the broking business. Whatmade sense was to go back to my originalbusiness and at the time JLT were in need ofleadership and some succession so I brought ateam of 20 people with no work permit issues— they are all Bermudians, long-term resi-dents or spouses of Bermudians. That gaveJLT some stability and continuity and they inturn gave us some scale.

“I still travel a lot but now most of mytravel is to North America. It’s a little easieron the old body!”


[ 12 ]

3

ANALYSIS / PRICEWATERHOUSECOOPERS Q4 2008OPERATING RATIOS

FINANCIAL STRENGTH RATINGS

ANNUAL LOSS RATIOS2008 2007 2006

ACE 60.6% 61.6% 61.2%Arch 65.0% 55.8% 58.1%Aspen 66.0% 53.0% 53.0%Allied World 57.4% 58.8% 59.0%Axis 63.7% 50.1% 52.9%Endurance 64.3% 47.0% 50.5%Everest Re 66.0% 63.7% 63.2%Flagstone Re 58.1% 40.4% 13.9%Hiscox 51.1% 44.0% 49.3%IPC 40.2% 31.9% 14.7%Max Capital 68.9% 64.0% 67.7%Montpelier 55.8% 31.8% 29.6%PartnerRe 63.9% 50.8% 54.8%Platinum 64.4% 55.9% 56.9%Renaissance Re 54.8% 33.6% 29.2%Validus 61.5% 33.1% 29.8%White Mtn 74.0% 61.0% 71.0%XL Capital 66.1% 59.8% 62.2%

ANNUAL EXPENSE RATIOS2008 2007 2006


ANNUAL COMBINED RATIOS2008 2007 2006


A M BEST RATING S&P RATINGMarch 6, 2009 March 7, 2008 March 6, 2009 March 7, 2008

ACE A+ A + A+ A+Arch A A A AAspen A A A AAllied World A A A – A –Axis A A A+ AEndurance A A A AEverest Re A+ A + AA– AA–Flagstone Re A – A – NR NRHiscox NR NR NR NRIPC A A A – A –Max Capital A – A – NR NRMontpelier A – A – A – A –PartnerRe A+ A + AA– AA–Platinum A A NR NRRenaissance Re A+ A + AA– AA–Validus A – A – NR NRWhite Mtn A – A – A– A –XL Capital A A A A+NR — Not rated by S&P

Outlook� 2008 saw unprecedented invest-ment losses, significant catastro-phes, a plethora of per risk proper-ty losses and soft market condi-tions. The start of 2009 has seenrate hardening in several classes.� Capital will be much harder toaccess going forward than in previ-ous hard cycles.� Several companies have re -assessed their investment portfo-lios, taking steps to de-risk theirholdings and place more emphasison short term, cash and equivalentsand government-backed securities.

Earnings� In 2008, overall gross premiumswritten were generally flat com-pared to the prior year quarter(excluding reinstatement premi-ums due to Ike loss revisions). Anyincreases from diversification intonew lines and acquisitions wereoffset by the softer market.� Despite a slight overall increasein net premiums earned, all compa-nies on our list suffered significantdeclines in earnings both quarterover quarter as well as for the year.

� Results were significantly im -pacted by specific catastrophe loss-es and investment losses, particu-larly from alternative investmentsand hedge funds.� Investment losses resulted fromcontinued volatility in the markets.Investment income was lower.� Foreign exchange rate move-ments had a reasonably significanteffect this quarter.

Capital management� Share repurchase activity tailedoff in the second half of the year.Most companies indicated thatthey plan to retain capital due tothe current state of the capitalmarkets and expected opportunitydue to improved underwritingconditions and the reduced partic-ipation of formerly significantworldwide competitors.

Other� Axis’ financial strength ratingwas upgraded by S&P to A+ inFebruary 2009.� IPC Re and Max Capital ann -ounced an agreement to amalga-mate in March 2009.

2008 2007 2006

ACE 19,242 17,740 17,401Arch 3,669 4,140 4,282Aspen 2,002 1,819 1,946Allied World 1,446 1,506 1,659Axis 3,390 3,590 3,609Endurance 2,246 1,781 1,790Everest Re 3,678 4,078 4,001Flagstone Re 782 577 302Hiscox 2,123 2,397 2,206IPC 403 404 430Max Capital 1,254 1,078 865Montpelier 620 654 728PartnerRe 4,028 3,810 3,734Platinum 1,067 1,140 1,275Renaissance Re 1,736 1,810 1,944Validus 1,362 989 541White Mtn 4,117 4,190 4,312XL Capital 8,260 8,998 9,786

2008 2007 2006

ACE 13,203 12,297 11,825Arch 2,845 2,945 3,082Aspen 1,702 1,734 1,676Allied World 1,117 1,160 1,252Axis 2,687 2,734 2,694Endurance 1,766 1,595 1,639Everest Re 3,694 3,998 3,853Flagstone Re 654 477 192Hiscox 1,763 1,929 1,741IPC 387 391 397Max Capital 814 818 665Montpelier 529 557 583PartnerRe 3,928 3,777 3,667Platinum 1,115 1,173 1,337Renaissance Re 1,387 1,424 1,530Validus 1,257 858 307White Mtn 3,710 3,784 3,713XL Capital 6,640 7,205 7,570

ANNUAL GROSS PREMIUMS WRITTEN $M

ANNUAL NET PREMIUMS EARNED $M


[ 13 ]

Net income (loss) attributable to common shareholders ($m) Fully diluted earnings (loss) per share ($)Q4 2008 Q4 2007 Q4 2006 Q4 2008 Q4 2007 Q4 2006

ACE 20 572 665 0.06 1.69 1.99Arch (143) 234 239 (2.38) 3.31 3.12Aspen 22 135 120 0.18 1.44 1.20Allied World 20 123 128 0.39 2.01 2.04Axis 131 306 281 0.88 1.89 1.69Endurance 13 149 195 0.22 2.18 2.70Everest Re (17) 12 206 (0.27) 0.19 3.15Flagstone Re (76) 51 n/a (0.89) 0.60 n/aHiscox n/a n/a n/a n/a n/a n/aIPC 42 163 108 0.79 2.48 1.52Max Capital (94) 62 95 (1.67) 1.00 1.51Montpelier (48) 91 122 (0.57) 0.97 1.26PartnerRe 87 172 234 1.53 3.04 4.03Platinum 61 100 83 1.18 1.60 1.28Renaissance Re (55) 62 201 (0.91) 0.88 2.78Validus 37 139 69 0.47 1.77 1.16White Mtn (213) 101 278 (22.92) 9.55 60.33XL Capital (1,433) (1,216) 471 (4.36) (6.88) 2.62

2008 2007 2006ACE 14,466 16,677 14,278Arch 3,433 4,036 3,591Aspen 2,779 2,818 2,389Allied World 2,417 2,240 2,220Axis 4,461 5,159 4,413Endurance 2,207 2,512 2,298Everest Re 4,960 5,685 5,108Flagstone Re 986 1,210 864Hiscox 1,369 1,640 1,337IPC 1,851 2,126 1,991Max Capital 1,280 1,584 1,390Montpelier 1,358 1,653 1,493PartnerRe 4,199 4,322 3,786Platinum 1,809 1,998 1,858Renaissance Re 3,033 3,478 3,280Validus 1,939 1,935 1,193White Mtn 2,899 4,713 4.455XL Capital 6,115 9,948 10,131

2008 2007 2006Common shares issued Market value $ Common shares issued Market value $ Common shares issued Market value $

ACE 333,645,471 52.92 329,704,531 61.78 326,455,468 60.57Arch 60,511,974 70.10 67,318,466 70.35 74,270,466 67.61Aspen 81,506,503 24.25 85,510,673 28.84 87,788,375 26.36Allied World 49,036,159 40.60 48,741,927 50.17 60,287,696 43.63Axis 136,212,000 29.12 142,520,000 38.97 149,982,000 33.37Endurance 57,203,454 30.53 60,364,488 41.73 66,480,381 36.58Everest Re 65,600,000 76.14 65,400,000 100.40 65,000,000 98.11Flagstone Re 84,801,732 9.77 85,309,107 13.90 n/a n/aHiscox 368,665,000 4.89 393,573,000 5.70 393,916,000 5.49IPC 56,094,348 29.90 57,626,395 28.87 63,706,567 31.45Max Capital 55,805,790 17.70 57,515,075 27.99 60,276,560 24.82Montpelier 93,368,434 16.79 99,290,078 17.01 111,775,682 18.61PartnerRe 57,748,507 71.27 57,379,516 82.53 57,076,312 71.03Platinum 47,482,161 36.08 53,779,914 35.56 59,671,959 30.94Renaissance Re 61,503,333 51.56 68,920,319 60.24 72,140,045 60.00Validus 75,624,697 26.16 74,199,836 25.98 58,482,601 n/aWhite Mtn 8,808,843 267.11 10,553,572 514.05 10,782,753 579.43XL Capital 330,812,343 3.70 177,910,151 50.31 180,983,611 72.02

MARKET CAPITALISATION

Q4 EARNINGS (LOSS) DATA

SHAREHOLDERS’ EQUITY ($M)n/a = data not publicly available

Net income (loss) attributable to common shareholders ($m) Fully diluted earnings (loss) per share ($)2008 2007 2006 2008 2007 2006

ACE 1,197 2,578 2,305 3.53 7.66 6.51Arch 265 832 693 4.09 11.28 9.08Aspen 104 489 378 0.89 5.11 3.75Allied World 184 469 443 3.59 7.53 7.75Axis 351 1,055 926 2.26 6.41 5.63Endurance 83 506 483 1.32 7.17 6.73Everest Re (19) 839 841 (0.30) 13.19 12.87Flagstone Re (187) 168 152 (2.20) 2.05 2.17Hiscox 131 382 321 0.34 0.93 0.79IPC 76 368 377 1.45 5.53 5.48Max Capital (175) 303 217 (3.10) 4.75 3.43Montpelier (146) 316 303 (1.69) 3.31 3.22PartnerRe 12 683 715 0.22 11.87 12.37Platinum 216 347 319 3.98 5.38 4.96Renaissance Re (13) 570 762 (0.21) 7.93 10.57Validus 53 403 183 0.61 5.95 3.11White Mtn (555) 407 673 (54.96) 37.89 62.32XL Capital (2,632) 206 1,722 (11.02) 1.15 9.60

ANNUAL EARNINGS (LOSS) DATA


[ 14 ]


[ 15 ]

Bermuda’s insurance industry haslittle to fear from the USGovernment’s moves against

tax haven abuse, but it cannot becomplacent about renewed plansto tax offshore reinsurers, accord-ing to Brad Kading, President andExecutive Director of theAssociation of Bermuda Insurersand Reinsurers (ABIR).

Speaking during a presentationto Bermuda Insurance Institutemembers at the Fairmont Ham -ilton Princess on March 11, MrKading said turmoil in the finan-cial markets, political change inWashington and the continuedsuccess of the Bermuda businessmodel had made the Island’s ClassFour reinsurers bigger targets asthey were seen as a threat to theUS insurance industry.

He said the proposed tax onaffiliated reinsurance transactionsbetween US subsidiaries and theirforeign affiliates didn’t just applyto Bermuda. “It applies equallywhether you are a Japanese,Australian or European company,”he said.

The proposal, introduced inSeptember 2008 by RepresentativeRichard Neal and likely to be rein-troduced this year, would amendthe Internal Revenue Code of1986 and disallow the deductionfor excess non-taxed reinsurancepremiums with respect to UnitedStates risks paid to affiliates.

ABIR, which represents 23Bermuda-based global insurersand reinsurers, has called the plananti-competitive and discrimina-tory and warned it would ultimate-ly mean more expensive insurancepremiums for US policyholders. Itsays the proposal would unfairlypenalise the US operations of for-eign-owned insurance and reinsur-ance companies as it would giveproperty and casualty insurersheadquartered in the United Statesa competitive advantage over USP&C companies that engage inaffiliate reinsurance transactionswith their foreign parents. ForBermuda-based companies it

would effectively increase the 1%Federal excise tax (FET) they payon gross reinsurance premiums tomore than 20%.

Mr Kading told BII members:“This is the third time it has beentried in 20 years but what’s new isthat for the first time in this periodthere is a Democratic Presidentand a Democratic congress.

He added: “Also, it is importantto recognise the huge US federalbudget deficit that’s driving a des-perately revenue-hungry congressto point to all sources for revenue.To pay for proposed increase inspending for a programme, amember of congress has to proposean offsetting revenue gain so thatthere’s no net growth in thedeficit.”

In a 33-page response to aSenate Finance Committee(Majority) Staff Discussion Drafton the proposal on February 25,ABIR stated: “There is no evi-dence that foreign affiliate reinsur-ance presents transfer-pricingissues or is otherwise inconsistentwith US tax norms, and there isconsiderable evidence that thesetransactions serve important non-tax business purposes. Moreover, itdoes not appear that the US P&Cindustry suffers from foreign com-petition. Thus, there is no apparentbasis for singling out the globalreinsurance industry for the dra-conian treatment proposed by theStaff Discussion Draft. Par -ticularly in view of the historiceconomic weakness in the globalcapital markets, it seems counter-intuitive to consider any legislativeproposal that would limit theavailability of foreign sources ofinsurance capital, as would occurunder the Staff Discussion Draft.”

ABIR point out that both US-based P&C companies and for-eign-owned US insurers use affili-ate reinsurance for the same validbusiness purposes.

“The market for reinsurance is aglobal one, and Bermuda is a majorreinsurance centre that is fully com-pliant with international standards

of transparency and exchange ofinformation. As for concerns aboutprotecting the US P&C industryfrom foreign competitors, puttingaside the current turmoil in thefinancial markets that has affectedall participants, in recent years US-based P&C insurers have earnedrecord profits and their businesseshave grown dramatically.”

It added: “Ultimately, US con-sumers would suffer due to thenegative effects of the StaffDiscussion Draft on the availabili-ty and affordability of P&C insur-ance in the United States. Theproposed treatment would delivera competitive advantage to US-based insurance groups by impos-ing disproportionately higher taxeson their foreign-owned competi-tors who enter into reinsurancearrangements that are typical with-in related groups of insurancecompanies.”

The Coalition for CompetitiveInsurance Rates - which includesABIR, US industry groups, con-sumer organisations in hurricane-hit Florida and the Southeast US,and global industry leadersAllianz, Zurich and Munich Re -warned in a separate letter to thecommittee in February: “Theproperty and casualty insuranceindustry has been largely insulated

from the 2008 capital markets cri-sis. Ironically the impact of thislegislation may well be to create acapital markets crisis for insurancewhere none exists today.Reinsurance functions as capitaland the impact of this legislation islikely to create a capital shortfall!”

Meanwhile, Mr Kading saidBermuda-based reinsurers wouldnot be affected by the Stop TaxHaven Enforcement Act, reintro-duced on March 2 by Senator CarlLevin. “There may be someBermuda corporations affected bythe bill,” Mr Kading told GlobalReinsurance magazine. “We don’tbelieve it affects the global insur-ance and reinsurance companiesbased in Bermuda.”

He said the Levin Bill wasaimed at US multinational corpo-rations and US citizens. “It isfocused on secrecy and financialreporting concerns.”

He added that Bermuda did notmeet the definition of “tax haven”as outlined by Senator Levin as “aforeign jurisdiction that maintainscorporate, bank, and tax secrecylaws and industry practices thatmake it very difficult for othercountries to find out whether theircitizens are using the tax haven tocheat on their taxes.”

“Bermuda is not a bank secrecyjurisdiction,” Mr Kading said. “Wehave tax information exchangeagreements with the US, UK andwith other countries. Bermudawillingly enters into such agree-ments. Bermuda recently signed anadditional law enforcement co-operation agreement with the US.Bermuda is cited by the USTreasury and the OECD as a co-operative jurisdiction with regardto tax law enforcement. Our mem-bers in Bermuda perform substan-tive underwriting in Bermuda andmost have their headquarters staffin Bermuda.”A full copy of ABIR’s comments on theSenate Finance Committee (Majority)Staff Discussion Draft Proposal canbe downloaded from www.abir.bmunder Public Policy/US Taxation

Little to fear over tax haven abuseKADING SAYS ‘BERMUDA IS NOT A BANK SECRECY JURISDICTION’

REPORTS BY CHRIS GIBBONS

Brad Kading, President andExecutive Director of theAssociation of BermudaInsurers and Reinsurers

NEWS REVIEW


The first big move in what isexpected to be a year of increas-ing mergers and acquisition

activity in the Bermuda marketwill see IPC Holdings and MaxCapital Group join forces.

Following the merger —expected to close in Q3 2009 —the holding company will berenamed Max Capital Group Ltd.The combined company, MaxCapital Group, will serve as theBermuda-based holding companyfor the existing global specialtyinsurance and reinsurance operat-ing subsidiaries of Max and forIPCRe Limited, the existingBermuda-based property-catastro-phe reinsurance subsidiary of IPC.IPCRe Limited will be renamedMax IPC Re Ltd.

If the agreement receives share-holder and regulatory approval,Max stockholders will receive0.6429 IPC shares for each Maxshare. Upon closing of the tax-free,stock-for-stock merger, IPCshareholders will own approxi-mately 58% of the combined com-pany on a fully diluted basis withMax shareholders owning approxi-mately 42%.

Max Chairman and CEOMarty Becker, and Jim Bryce,President and CEO of IPC, saidthey believed the combination ofthe two companies would create a“stronger, more diversified globalunderwriting franchise.”

In a joint statement they said:“IPC and Max have complementa-ry businesses with very little over-lap. The new platform will increasethe global scale of each companyand further enhance our collectiveability to capitalise on attractiveopportunities in the property-casu-alty marketplace, and thereby buildlong-term value for all our share-holders. From a financial perspec-tive, based on results at December31, 2008, this transaction creates astronger capitalised company, withshareholders’ equity of over $3 bil-lion and total assets of approxi-mately $10 billion. We expect thatthe combined entity will have less

volatile underwriting results thaneither of its individual components,as well as more flexibility to effi-ciently manage capital.”

They listed three significantbenefits for shareholders of bothcompanies that would also providea strong foundation for futurefinancial performance:� Enhanced size and scale. Thecombined company is expected tohave shareholders’ equity over $3billion, which should lead toimproved financial strength andflexibility.� Global platform and diversifiedbusiness mix. The combined com-pany will have a diversified special-ty insurance and reinsurance busi-ness, with underwriting facilitiesin Bermuda, Dublin, at Lloyd’sand in six major US cities.� Management and underwritingtalent. Highly experienced man-agement and underwriting teamswith long-standing industryknowledge and relationships. IPChas been in operation for over 15years and Max for approximatelynine years.

Mr Becker will be the Presidentand CEO of Max Capital Groupwhile Mr Bryce will retire as ofJune 30, 2009, although he will

continue in a non-executive role asChairman of Max IPC Re and willbe active in client relations andmarketing.

“We are pleased that Jim willhave an important role at Max IPCRe, which will strongly benefitfrom his 35 years of property-catastrophe underwriting expert-ise, his reputation in the market,and his strong client relationships,”said Mr Becker.

If the transaction has not closedby June 30, IPC’s Chief FinancialOfficer, John Weale, will becomeacting CEO of IPC following MrBryce’s retirement and pending the

closing of the transaction.The board of directors of the

combined company will havetwelve directors, consisting of sixcurrent independent directors ofIPC and six directors from Max,including Marty Becker.

Kenneth L Hammond, non-executive Chairman of IPC’s Boardof Directors, will assume the non-executive Chairmanship of theBoard of Directors of the combinedcompany Max Capital Group.

He said: “This transaction is theresult of over a year of strategicanalysis by IPC as to how to betterposition the company for ourshareholders. Jim Bryce and histeam have worked hard to makethis happen and we are very excitedwith the result and the opportuni-ties it presents. We are also pleasedthat the combined company willcontinue to maintain its presence inthe Bermuda community.”

In addition to Mr Becker, PeterMinton, Max’s Chief OperatingOfficer, and Joe Roberts, Max’sChief Financial Officer, will holdtheir respective titles at MaxCapital Group, and John Wealewill become Executive VicePresident and Treasurer of MaxCapital Group.

BOSSES SAY MOVE CREATES A ‘STRONG GLOBAL UNDERWRITING FRANCHISE’

[ 16 ]

IPC and Max Capital Group to mergeNEWS REVIEW

Argo Group has established aCasualty and Professional RisksDivision within Argo Re, theCompany’s Bermuda-based rein-surance operation.

The newly-formed division willwrite general and product liability,product recall, excess directors’and officers’ liability, A-side pri-mary, lead DIC (difference in con-ditions) and follow form, excesserrors and omissions liability, pri-mary and excess employmentpractices liability, and excesscrime & fidelity risks, with capaci-ty limits of up to $25 million.

The Casualty and ProfessionalRisks business will be headed by

Nigel Mortimer, who has beenappointed Chief UnderwritingOfficer for Casualty andProfessional Risks at Argo Re. MrMortimer will lead a team ofunderwriters that includes MarkPeeters, Glenn Burles, TimothyHadler and Deirdre Lohan.

“We see tremendous opportu-nity in this part of the market,”said Argo Re President AndrewCarrier. “Argo Re’s unique spe-cialist approach means that, withthe right underwriting manage-ment in place combined withArgo Group’s strong balancesheet, we should be successfulat generating profitable risk-

adjusted returns.“In this regard, we are very

fortunate to have Nigel Mortimerand his team on board. Theyhave the experience and industryknowledge to establish this bookof business as a successfulundertaking.”

Mr Mortimer joins Argo Re withnearly two decades of experiencein the casualty sector. Most recent-ly he was Director of ProductDevelopment for XL Insuranceworldwide, a role he held from2007. He has had various seniorunderwriting positions with interna-tional insurers XL, Zurich Groupand Chubb Insurance.

Argo Re sets up new division

Marty Becker, Max Chairmanand CEO


Bermuda’s reinsurers are wagingan on-going campaign on sev-eral fronts to sustain the prop-

erty catastrophe business inFlorida, says Brad Kading,President and Executive Directorof the Association of BermudaInsurers and Reinsurers (ABIR).

Mr Kading told a SpringLunch meeting of the BermudaInsurance Institute at theFairmont Hamilton Princess onMarch 11, that ABIR is activelylobbying against the creation of an$18 billion Federal backstop forFlorida’s catastrophe reinsurancefund which it says will “substan-tially displace the entire reinsur-ance market.”

“This is something that affects allABIR members because Ber muda isthe global home of property catas-trophe underwriting,” he said.

Mr Kading explained thatFlorida mandates that insurersbuy reinsurance from its “supercat” fund. “Florida is currentlyselling $29 billion in coveragethrough the state catastrophefund. Unfor tunately the Floridacat fund can only finance $10 bil-lion of the $29 billion it has prom-ised to pay. Florida policy makershave recognised this enormousproblem and are trying to guaran-tee that if bonds are issued to payclaims, the Government will buythem. After all, they reason, what’san $18 billion bailout when AIGhas been given more than $100billion?”

Analysts say Florida may strug-gle to raise more than $3 billionfrom a bond issue in the currentfinancial climate.

Mr Kading added: “The Pres -ident supports the creation of aFederal backstop but has notendorsed a specific provision andbecause of other business in 2009it’s not clear that there will beserious consideration of compre-hensive legislation in this areaduring the current calendar yearas the committees that wouldwork in this area are also thoseworking on the global financial

crisis related issues.”Mr Kading said Florida needed

foreign reinsurance immediately.In 2007 foreign carriers provided93% of private reinsurance to theFlorida home insurance marketwith Bermuda-based companiesproviding 67% of that $2.2 billioncapacity.

He pointed out: “The ugly sis-ters of hurricanes Katrina, Rita and

Wilma in 2005 caused enormousdamage in the US and internation-al reinsurers funded 47% of thoseclaims payments to US citizens.Bermuda paid 24% of thoseclaims. Bermuda companies alonehave paid $30 billion in propertycatastrophe claims back to US cus-tomers for the last eight years.”

Mr Kading added: “Floridaneeds us today but would quickly

displace us for a cheaper source ofcapacity if they could and that’s theissue that drives the currentdebate: the cost of insurance.”

He said Bermuda companieswere working with consumer andindustry groups to “reframe” thedebate.

“It’s not about insurance prices,it’s a debate about hurricane riskand the environment.”

[ 17 ]

Why Florida needs BermudaLOBBY AGAINST ‘BACKSTOP’ WHICH COULD DISPLACE ‘THE ENTIRE REINSURANCE MARKET’

NEWS REVIEW


Investment performance is now the numberone risk facing the insurance industry, accord-ing to the latest CSFI Insurance Banana Skins

survey, conducted in association withPricewaterhouseCoopers.

The risk rankings, compiled from a survey ofover 400 senior insurance executives in 39 coun-tries in late 2008, including Bermuda, contrastedsharply with the previous survey made in 2007.

A seismic shift in risk perceptions has, notsurprisingly, placed “financial market risks” inthe top four positions, above the previous year’snumber one, “too much regulation.” Investmentperformance, equity markets, capital availabilityand macro-economic trends are now at the fore-front of insurers’ concerns and reflect the doublewhammy of the credit crunch and the globaleconomic downturn.

PwC Bermuda Insurance Partner, ColmHoman, said that although concern about toomuch regulation had slipped down the rank-ings (to fifth place) it remained a big issue inall the major markets.

“Insurers fear a regulatory crackdown in thewake of the credit crunch. Insurance executivesare also worried that the industry will be madeto share the cost for what is essentially a bank-ing crisis.”

Sharply up in ranking from the previoussurvey was doubt over the quality of the insur-ance industry’s risk management (6th), and itsexposure to complex risk instruments such ascredit default swaps (8th). These issues wereranked 14th and 19th respectively in 2007.There was a strong feeling among the 400respondents that the industry is not naturallyequipped to enter these markets and will haveto “go back to basics.”

Caroline Foulger, PwC Bermuda InsurancePartner, gave a specific Bermuda perspective onthis change.

“While this is clearly a very valid concern forcertain industry participants as recent resultsand announcements have shown, in general theBermuda reinsurance industry companies havemostly performed well in the risk managementarena in this time of broad economic challengecompared to the banks and some of the globalinsurance companies.”

The survey showed however that the indus-try globally was less confident about its ability tohandle risk than it was in 2007. Only 4% ofrespondents, compared with 21% in 2007,

thought that insurance companies were wellprepared.

Ian Dilks, Global Insurance Leader,PricewaterhouseCoopers, said: “The industry isnow operating in the worst economic downturnseen in decades which has led not only to amajor reappraisal of key risks but also a concernthat the industry is not as well placed to dealwith them as it once thought.”

One positive move was environmental-type risks, which receded. Natural catastro-phes and climate change, which were both inthe top 10 in 2007, are now ranked in the 20s.This is probably because there have beenfewer major events, but also because theindustry is more confident about managing itspeak risks. This was demonstrated specificallyin a Bermuda context by the losses fromHurricane Ike in 2008.

While many of the Bermuda companiesreported increases from their original loss esti-mates at year-end, the final estimates remainedwithin expectations, and without the broaderglobal economic crisis would not have been amarket-changing event. In contrast, in 2005, thecatastrophe reinsurance market experienced sig-nificant capital erosion from HurricanesKatrina, Rita and Wilma, although the broadercredit and investment markets remained buoy-ant at that time.

NEWS REVIEW

So many ways to slip up for industry

[ 18 ]

SURVEY SHOWS INSURERS LESS CONFIDENT ABOUT ABILITY TO HANDLE RISK COMPARED WITH 2007

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‘Insurance executives are also worried that theindustry will be made to share the cost for whatis essentially a banking crisis’

Insurance Banana Skins 2009(2007 ranking in brackets)

Investment performance (11)Equity markets (13)Capital availability (26)Macro-economic trends (-) Too much regulation (1)Risk management techniques (14)Reinsurance security (27)Complex instruments (19)Actuarial assumptions (8)Long tail liabilities (7)

‘A seismic shift inrisk perceptionshas placed financial marketrisks in the topfour positions,above the previous year’snumber one’


MEDIA WATCH

“The industry has lost about $85 billion of itscapital and we don’t see that coming back anytime soon. After other big losses, like 9/11 andHurricane Katrina, a lot of new capacity came infrom private equity and hedge funds, but that’snot going to happen this time. I don’t thinkwe’re going to see a Class of ‘09.”

— Barbara Merry, CEO of HardyUnderwriting Bermuda Ltd, in The Royal

Gazette

“You may say you’re well regulated, but so wasLehman Brothers. Bermuda is a cost to the US

and Europe; you can’t do anything about it.You’ve won by leveraging the financial situation.You will be one of the big losers.”

— Richard Murphy, head of advisory body TaxResearch UK warns Bermuda it is powerless to

stop the international crackdown on corporate taxabuse, quoted in the Mid-Ocean News

“We hope this will be a case of one plus oneequals more than two.” — IPC President and CEO Jim Bryce, in a con-ference call with analysts on the merger with Max

Capital Group

“If there’s a single episode in this entire 18months that has made me more angry [thanAIG], I can’t think of one. AIG exploited ahuge gap in the regulatory system. There was nooversight of the financial products division.[AIG] was a hedge fund, basically, that wasattached to a large and stable insurance compa-ny, made huge numbers of irresponsible bets,took huge losses. There was no regulatory over-sight because there was a gap in the system.”

—Federal Reserve Board Chair Ben Bernanke,at the Senate Budget Committee hearing on

President Obama’s proposed fiscal year 2009 budget

[ 19 ]

Navigate the legal risk.

Insurance | Bermuda | Reinsurance

www.aswlaw.com

Bermuda ‘one of the big losers’

ONSHOREApril 5–7Spring IRU ConferenceFairmont Southampton,Bermudawww.irua.com

May 16Bermuda Insurance InstituteAnnual Awards DinnerHarbourview Ballroom,Fairmont Hamilton Princess,BermudaContact Delma Parfitt at

[email protected]

May 18–19Casualty Actuarial SocietySeminar on ReinsuranceFairmont Hamilton Princesswww.casact.org

June 1Insurance Day SummitFairmont Hamilton Princesswww.insurancedaysummit.com

June 21–24Bermuda Captive ConferenceFairmont Southampton www.bcoa.bm

OFFSHOREApril 19–23RIMS Annual Conference &ExhibitionOrlando, Floridawww.rims.org

WHAT’S ON


[ 20 ]

PEOPLE

HISCOX has announced thatCharles Dupplin, currentlyChairman of Hiscox’s Art andPrivate Client division andDirector of Mergers andAcquisitions, will succeed RobChilds as CEO of HiscoxBermuda, which was established in2006. Mr Dupplin will take up thisnew role in April 2009, subject toregulatory approval.

Mr Childs will return to theUK towards the end of April 2009.

He will continue in his roles asGroup Director of Underwritingand Chairman of Hiscox USA. Hewill also serve as an internal non-

executive of Hiscox Bermuda.Robert Read will assume overallresponsibility for Art and PrivateClient underwriting. Mr Dupplinwill retain his responsibilities asDirector of Mergers andAcquisitions for the Group.

Mr Dupplin joined Hiscox in1990. He ran Hiscox’s network ofContinental European offices from1995–2000 and in 2004 wasappointed to lead the Group’s Artand Private Client division.

IRONSHORE INC has ann -ounced that John Murphy hasjoined as Worldwide Head ofProperty from Allied World. TheIronshore group currently writesproperty catastrophe and non-catastrophe business primarily outof Bermuda with plans to expandto the US and the UK this year.Boston-based Mr Murphy willprovide global strategic directionand consistency across allIronshore’s platforms. He has morethan 35 years of property under-writing experience in the insur-ance, reinsurance and surplus linesareas. Since November 2001, MrMurphy had served as ExecutiveVice President of Global PropertyUnderwriting at Allied WorldAssurance Company.

RENAISSANCERE HOLD-INGS LTD has promoted SeniorVice President Ian D Branaganto the position of Chief RiskOfficer. Former CRO ToddFonner will focus on his role asChief Investment Officer. MrBranagan joined RenaissanceRe in1998 to open the company’s Dublinoffice, later relocating to Bermudawith additional responsibilities forunderwriting risk and modelingacross RenaissanceRe’s insuranceand reinsurance operations.

Brian M O’Hara, Chairman ofthe Board of Directors and formerPresident and CEO at XL CAPI-TAL LTD, announced he wouldnot stand for re-election at theAGM. John T Thornton, amember of XL’s board since 1988,has also decided he will not run forre-election, while Robert SParker and Alan Z Senter,board members since 1992 and1986 respectively, have decidedto retire from the board at theend of 2009. Following theretirement of Mr O’Hara andMr Thornton the board will befixed at 11 directors.

James Loder has been appointedChief Underwriting Officer of XLINSURANCE’s Bermuda-basedProfessional Lines business.

Dupplin new CEO at Hiscox Bermuda

Charles Dupplin and Brian O’Hara


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