BIQ Oct PP Layout 1 9/14/11 11:32 AM Page 1 RESULTS & Q2 … · 2015. 6. 3. · BIQ Oct _PP_Layout...

BEST OF TIMES TO COMEHow the insurance industry faces a “golden age” of opportunity andwill rise to the challenges presented by the growth of the burgeoningeconomies of Brazil, Russia, India and China. See page 7

BENMOSCHEBACK INBUSINESS

ALL THERESULTS &ANALYSIS

ASSESSINGEARTHQUAKERISK

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BERMUDAINSURANCEQUARTERLY© 2011 Bermuda Media in association with

O c t o b e r 2 0 1 1

BIQ Q216

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Capital G Bank Limited and its wholly owned subsidiaries are licensed to conduct banking, investment and trust business by the Bermuda Monetary Authority.

First Bermuda Group Ltd. and its wholly owned subsidiaries are licensed to conduct deposit taking, investment and insurance agent business by the Bermuda Monetary Authority.

Joel P. Schaefer, CFA — President & CEO, Capital G Investments Limited

“ Welcome to the next level.”

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To learn more, please contact us:

Capital G is pleased to welcome Orion Investment Management to our growing family. As a specialist in fi xed income and risk management solutions, they take us to a new level of global fi nancial services. Along with our partners at KAST and First Bermuda Group, we remain dedicated to providing the service and attention that is our heritage, while building new capabilitiesto help the people and companies of Bermuda. We welcome everyone at Orion Investment Management to the Capital G family.

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“This was another difficultquarter for natural catastro-phes, while the challenges ofa competitive insurance mar-ket globally and sluggish eco-nomic conditions in devel-oped markets continue toweigh on growth.”

Evan Greenberg, CEO, ACE

“The question of the impactof the Neal bill depends onwhat it ends up saying, if itdoes get passed. The mostrecent version was treating allforeign reinsurers the same,so that wouldn’t be damagingto Bermuda’s relative competitiveness. However,it would increase costs.”Marty Becker, CEO, Alterra Capital Holdings

“Our transaction fully satisfies the key strategicgoals outlined by Transatlantic with greater cer-tainty. We believe that Validus’ proposal is inferi-or. It cannot provide Transatlantic’s shareholderswith the same value that our merger of equalscan. Validus’ unsolicited proposal is an attempt to

acquire Transatlantic at a sig-nificant discount to bookvalue. In addition, the neededreduction to Transatlantic’sproperty catastrophe businessin the inferior Validus take -over to a level compliant withTransatlantic’s enterprise risk management risktolerances, would lead to limited property catas-trophe writing flexibility.”Scott Carmilani, President & CEO, Allied World

“Through recent renewal periods … we reducedcertain catastrophe exposures to bring greaterbalance to our overall risk portfolio and ultimatelymaximise the risk-adjusted return potential ofthe total portfolio … We sawsome encouraging signs inthe June and July renewals.As we approach the January 1,2012 renewal, PartnerRe iswell positioned to take advan -tage of market opportunitiesin shorter-tail lines within a disciplined risk-return framework, and maintain our position inlonger-tail lines until pricing momentum improves.”Costas Miranthis, President & CEO, PartnerRe

BERMUDA INSURANCEQUARTERLY

EditorRichard Whitaker

Art DirectorPaul Shapiro

WritersStuart Collins, Roger Crombie

Director of MarketingLissa Fisher

PublisherIan Coles

Published by Bermuda Media. Postaladdress: PO Box HM 2032, HamiltonHM HX, Bermuda. Tel: 292-7279 Fax:295-3189 Email: [email protected]: www.bermudamedia.bm

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BIQ

Industry experts say that Ber -muda’s reinsurers should see littleimpact from Tropical Storm Irene.There had been fears that

insurers would have to pay out upto $14 billion as the large stormheaded up the east coast but, fortu-nately, the Category 2 hurricaneweakened before it hit New York.Most of the insured losses

caused by Hurricane Irene in theUS are likely to be borne by pri-mary insurers, meaning thatBermuda’s reinsurers should seelittle impact from the storm.Industry expert and economist

Robert Hartwig, President of theInsurance Information Institute,told The Royal Gazette: “Reason -able estimates for insured losses(excluding the federal flood pro-gramme) are in the $3 billion to $5billion range. At this magnitude ofloss, Irene is not a ‘market turning’event, though it does incremental-ly add pressure to property insur-ance rates and property/catastro-

phe reinsurance markets.“I don’t believe reinsurers will

see much impact from Irene. Mostof these losses will be retained byprimary insurers.”Ratings agency Fitch said:

“Insured losses brought on byHurricane Irene are likely to be

material, but manageable, for USproperty and casualty insurers andreinsurance companies. From thestandpoint of rating actions over-all, Fitch does not anticipate mate-rial rating changes for any insurerstied solely to losses from Hurr -icane Irene. Insurers most likely to

be affected by the storm includethose companies who emphasisehomeowners and commercial mul-tiperil property insurance.”Catastrophe modelling firm

AIR Worldwide estimates insuredproperty losses from Irene are likelybetween $3 billion and $6 billion.

THE QUOTES OF THE QUARTER

V o l u m e 7 , N u m b e r 4O c t o b e r 2 0 1 1

Sigh of relief after Hurricane Irene slams US BUT STORM DOES ADD PRESSURE TO PROPERTY/CATASTROPHE REINSURANCE MARKETS

[ 1 ]

Catalina Holdings (Bermuda)Ltd’s wholly owned subsidiary,Catalina Echo Ltd, has signed adefinitive merger agreement toacquire Residential Loss ControlHoldings, LLC (RLCH).

Subject to regulatoryapproval, the acquisition isexpected to close in the fourthquarter of 2011. RLCH owns two risk retention groups,National Home InsuranceCompany (NHIC) and ResidentialInsurance Company, basedrespectively in Colorado

and Hawaii.On June 30, and as adjusted

for a pre-closing dividend,Catalina said RLCH had totalassets of $168.4 million, grosstechnical reserves of $113.7 million and net assets of $19.4million. The purchase price wasat a discount to net asset value.

Established in 2005, Catalinaspecialises in “the acquisitionand management of non-lifeinsurance and reinsurance com-panies and portfolios in run-off”.The company currently has

offices and operations inBermuda, New York, London and Switzerland.

Chris Fagan, Chairman andChief Executive of Catalina said:‘“RLCH and its managementteam is well known to Catalina aswe are a reinsurer to NHIC andfamiliar with the business. Theacquisition is a good addition toour existing US business.

“We continue to be veryacquisitive, and we are seeing an increased flow of run-offacquisition opportunities.”

Catalina signs merger agreement

BIQ Oct _PP_Layout 1 9/14/11 11:28 AM Page 1

IN BRIEF

The Florida Office of InsuranceRegulation has signed two con-sent orders that allow Ber -

muda-based reinsurers Ariel Re -insurance Co Ltd and DaVinciReinsurance Ltd to post reducedcollateral and operate in Florida aseligible reinsurers.The orders make the companies

the 15th and 16th reinsurersrespectively to operate in Florida

with similar terms. Fifteen of the16 are based in Bermuda.Ariel reported capital and sur-

plus of $1.3 billion, which exceedsthe $100 million requirement.DaVinci reported capital and sur-plus of $1.4 billion. The reinsurersalso indicated secure financialstrength by demonstrating favourableratings from two nationally recog-nised statistical rating organisations.

The other eligible reinsurers inFlorida are: Axis Specialty Ltd,Ace Tempest Reinsurance, AlliedWorld Assurance Co Ltd, AlterraBermuda Ltd, Arch ReinsuranceLtd, Aspen Insurance Ltd, Mont -pelier Reinsurance Ltd, HannoverRe (Bermuda), Hannover Re(Germany), Hiscox Insurance Co,Partner Reinsurance Co, Ren -aissance Reinsurance, Tokio Mill -

ennium Re Ltd and XL Re Ltd.Florida’s legislature passed

sweeping reforms in September2008 enabling the office to setlower collateral requirements fornon-US reinsurers that are deemedfinancially sound and highly rated.

Ariel and DaVinci get Florida green lightFIFTEEN BERMUDA-BASED REINSURERS NOW OPERATING IN SUNSHINE STATE

[ 2 ]

BenefittingBermudaBermuda could gain more of Brit ain’sinsurance business unless theBritish Government and industrywork out how to compete betterglobally. That’s the view of ClementBooth, the Chairman of Allianz’s UKunit, who said that in the past twoor three decades no global insur-ance group had returned to makeBritain its home again. He also saidthat no new global group haddeveloped here.

In the meantime, Mr Booth said $65 billion had come acrossinto Bermuda’s insurance sector to create an extra 10,000 jobs onthe Island.

“In the UK we should try to compete for a bit of that,” he toldan Association of British Insurers’conference. “We need to reflect asa community ... on the capital thatis flowing into Bermuda andSwitzerland and even Ireland.”

Argo places cat bondArgo Group International HoldingsLtd has placed a $100 millioncatastrophe bond. LomaReinsurance Capital Ltd Series2011–1, is listed on the CaymanIslands Stock Exchange and isArgo’s first cat bond issuance.

Argo’s bond provides protectionagainst the occurrence of two ormore US hurricanes, US earth-quakes, European windstorms, orJapan earthquakes. For activationthe bond establishes per occur-rence minimum loss amounts andis triggered by a second and sub-sequent event that meets specificloss criteria. The bond has beenrated BB- by Standard & Poor’s.


IN BRIEF

Ironshore Inc has announced thatthe company is broadening itsrelationship with Equinox Global

Limited to extend additional un -derwriting capacity to its trade cred-it insurance market programme.

Ironshore will provide increasedcapacity on a facultative basis forall eligible territories to meet thegrowing insurance demands ofEquinox Global, a managing generalagent specialising in trade credit.“Ironshore’s expanded relationshipwith Equinox Global allows us toprovide greater access to an on-demand, one-stop resource forcapacity in an expeditious man-ner,” said Daniel L Sussman,President of Ironshore’s PoliticalRisk Unit. “Our continued partici-pation in this enhanced pro-gramme signals a mark of confi-dence in Equinox Global’s abilityto provide cover to an even largerglobal client base.”

Equinox Global, exclusively

dedicated to the trade credit insur-ance market, was established inNovember 2010 to offer coveragewith first class security in the cred-it insurance sector throughout var-ious market cycles.

“As our business grows it isappropriate for us to be able tooffer increased capacity alignedwith increased demand,” saidMichael Holley, CEO of EquinoxGlobal. “Meeting the needs of ourcustomers is our top priority, and

this arrangement with Ironshoresends a clear message to the mar-ket that we can respond to theneeds of companies of all sizes.”

Meanwhile, Ironshore Inc hasannounced that A M Best hasaffirmed the financial strength rat-ing of A– (Excellent) and issuercredit ratings of a– for Ironshore’soperating subsidiaries.

The operating subsidiaries in -clude Ironshore Insurance Ltd(Bermuda), Ironshore Indemnity

Inc (Minnesota), Ironshore Spec -ialty Insurance Company (Ariz -ona) and Ironshore Europe Ltd(Ireland). The outlook for all rat-ings is stable.

“In its affirmation announce-ment, A M Best emphasised thatthe ratings reflect Ironshore’sstrong risk-adjusted capitalisation,enhanced and developing businessprofile and highly experiencedmanagement team,” said KevinKelley, Ironshore’s CEO.

Ironshore to raise underwriting capacity

For 25 years the CODA policy has been providing high quality personal asset protection

insurance for directors and officers of large multinational corporations. CODA is a flagship

policy of ACE Bermuda Insurance Ltd. (ACE Bermuda) and demonstrates our commitment

to innovation and the development of market leading products that respond effectively

to the changing demands of our insureds. We call this insuring progress. To find out more

about how the CODA policy can work for you, please contact your Bermuda-based broker

or visit acecoda.com

© 2011 The ACE Group of insurance and reinsurance companies. ACE, ACE logo, insuring progress and CODA are registered trademarks of ACE Limited. ACE Bermuda acquired CorporateOfficers & Directors Assurance Ltd. (CODA) in 1993. ACE Bermuda’s products are only available through non US-based brokers. This is not a solicitation for insurance business.

Directors and Officers Insurance

celebrates 25 years ofinnovation and service

[ 3 ]

A stalwart ofthe Bermudareinsuranceindustry wasrecognised inthe Queen’sBirthdayHonours List.Michael Butt, who founded theWorld Insurance Forum, wasawarded an OBE.

Mr Butt, the Chairman ofAxis since 2002, was recog-nised for his contributions toBermuda’s reinsurance industry.He has previously chaired MidOcean Reinsurance and been aDirector of XL.

“This is also an award forBermuda, and for all those whohave, in the last 20 years, helpedtake Bermuda from an interestingbut peripheral part of the world’sreinsurance market, to its verycentre. Our task now is to keepit there,” he said.

OBE rewardsButt’s role inreinsurance

Michael Butt


NEWS REVIEW

Insurers boost local economy by $971mThe Island’s 22 major reinsurerscontributed nearly $971 millionto Bermuda’s economy last year.New figures from the Ass -

ociation of Bermuda Insurers andReinsurers’ (ABIR) annual eco-nomic impact survey also revealthat the industry employs 1,696people on the Island — and 66percent are Bermudian.And despite the current global

economic downturn, Bermudiansin the reinsurance industry areearning almost $200,000 a year.The report shows that the total

number of people employed in theindustry has fallen slightly fromabout 1,782 in 2007 to just under1,700 in 2010, but the number ofBermudian employees has risenfrom 1,098 in 2007 to 1,128 in2010.The ABIR says its members —

which include XL Group, ACEand PartnerRe — have increasedtheir workforces in the US, Asiaand Europe, employing around32,000 employees globally.

According to the survey, ABIRmembers’ economic contributionincluded:l $737 million ($700 million lastyear) in aggregate pay to employ-ees based in Bermudal $302 million in salary and othercompensation paid to just Ber -mudiansl $116 million ($125 million inthe previous year) on construction,real estate, housing, rentals oroffice leasesl $81 million (previously $82 mil-lion) paid to Bermuda-based thirdparty business consulting providersl $27 million (last year $25 mil-lion) on travel and entertainmentpaymentsl $10.6 million (previous year $10million) in contributions to Ber -muda-based charitiesABIR Chairman, Dinos Ior -

danou, CEO of Arch CapitalGroup, said: “ABIR’s members areintegral to a successful economy inBermuda.”He said the average salary and

benefits compensation for ABIRmember Bermudian citizens onlywas $197,000 in 2010, while themedian was $127,000. Averagesalary and compensation forBermudians has risen substantially— from $108,000 in 2007.“ABIR members provide good

quality jobs for Bermudian citizensand it is in our self interest to hireBermudian employees with skillsand talents that match our needs,”Mr Iordanou said.ABIR President Brad Kading

welcomed the government’s plansto offer permanent residency statusto some 10-year work permit hold-ers, together with other initiativesincluding plans to identify job cat-egories exempt from term limits.“We strongly support the gov-

ernment’s efforts to create incen-tives for senior executives with hir-ing authority to be resident inBermuda. We are quite encouragedby the Premier’s recent announce-ments on this matter and we arelooking forward to the develop-ment of the implementing meas-ures.“The more executives with hir-

ing authority located in Bermuda,the more opportunities there willbe for additional Bermudian citi-zens to find jobs with theseemployers.”

[ 4 ]

IORDANOU: ‘IN OUR SELF-INTEREST TO HIRE BERMUDIAN EMPLOYEES WITH SKILLS AND TALENTS THAT MATCH NEEDS’

ABIR President Brad Kading

Bermuda-based insurer Lancashire Hold -ings Ltd has received approval from itsshareholders to go ahead with plans tomove to UK tax residency.Lancashire, which has both UK and

Bermuda-based insurance subsidiaries, saidits Board of Directors had been reviewingits Bermudian tax residence at regularintervals and, following the publication ofthe latest proposals for the reform of theUK’s Controlled Foreign Companies(CFC) rules, said that it intended to moveits tax residence to the UK.Lancashire, which was founded follow-

ing Hurricane Katrina in 2005, said the lat-est proposals for the reform of the UK’sCFC rules, had determined its decision toseek shareholder approval to implement“changes in the Company’s bye-laws toallow the conduct of board and shareholderbusiness in the UK in anticipation of theCompany’s move to UK tax residence in2012.”The shareholders also approved a resolu-

tion that “confers authority on theCompany to allot and issue common sharesfor cash in an amount up to 10 percent ofthe Company’s issued share capital at thedate of the SGM notice (an aggregatenominal value of $8,430,121) on a non pre-emptive basis.”Lancashire’s Chairman Martin Thomas

explained that the “vote permitting theissue of up to 10 percent of shares on a nonpre-emptive basis, recognises and affirmsthe approach to capital management thatthe company has consistently and success-fully deployed since its inception in 2005.It gives the company the ability to raisecapital rapidly to take best advantage ofunderwriting opportunities, whilst avoidingthe inevitable procedural delay of a UKrights issue.”Lancashire is not required to move its

place of incorporation in order to qualifyfor the temporary period exemption, andcurrently intends to remain incorporated inBermuda.

The Bermuda Insurance Management Association(BIMA) hopes to add more self-managed captivesto its membership.

The Association, established more than 30years ago to represent Bermuda’s captive man-agers, also hopes to change its constitution toallow professional service providers, such as auditfirms, banks and legal firms, to become memberstoo, according to a story in the latest BermudaInsurance Update newsletter.

BIMA president Tom McMahon told thenewsletter: “We are quietly confident that more ofthe self-managed captives will become members. I would like to see our membership over 55 by theend of the year. It is important that BIMA has astrong voice, especially lately with so many issueson the table. That is quite evident this year with allthe dialogue we have had with the BermudaMonetary Authority on the Code of Conduct andSolvency II. It is important that when we are pre-senting our views on such subjects, we are reflect-ing a more widespread consensus.

“Self-managed captives are a part of the broad-er captive industry and they should have a vehiclethrough which they can make their views known.”

Plans to broadenmembershipLancashire to domicile in UK


A rgus Group Holdings Limitedhas announced a net loss of$5.7 million for the year ended

March 31, 2011, compared to a netloss of $18.4 million in the previ-ous year.

Alison Hill, Chief ExecutiveOfficer of the Argus Group, said:“Every one of our seven businessunits recorded excellent results forthe period, generating earnings inthe region of $20 million againstthe backdrop of a continuedrecession.

“We were disappointed that afurther deterioration in the valueof certain of our investments, pri-marily in Bermuda, resulted in anet loss of $5.7 million for the yearended March 31, 2011. Share -holders’ Equity stood at $82 mil-lion, substantially in excess of thestatutory capital required to con-duct the Group’s various insurancebusinesses. All business units con-tinue to deliver strong perform-ance, are producing steady cashflows and are well placed to cap-ture growth as the local and globaleconomies start to recover.

“At September 30, 2010, thehalf year, we reported net earningsof $6.6 million and we were opti-mistic of meeting our annual earn-ings target. However, in the secondhalf of the year the further diminu-tion in value of $9 million to ourequity portfolio, principally in localinvestments and $17.5 millionagainst potential non-performinginvestments in the hospitality sec-tor and local mortgages, have com-bined to produce negative earn-ings. The balance sheet now facessubstantially less exposure to mate-rial risks arising from non-coreinvestments and enables Argus tobuild on its history of over 60 yearsof service to Bermuda.

“Without these investment-related losses the earnings wouldhave produced net income in theregion of $20 million for theyear, generated through theachievement of very high clientretention levels and substantiallyexceeding our new business tar-

gets across all business lines.“The reduction in value of local

investments over recent years hasled to the diminution in surpluscapital available for distribution toshareholders as a dividend. In lightof this, and to ensure that we con-tinue to maintain a capital basethat is well in excess of minimumstatutory requirements, the divi-dend payment to shareholders will

be temporarily suspended.“During the year Shareholders’

Equity was reduced to $82 millionby the net loss of $5.7 million, cashdividends of $8.4 million andOther Comprehensive Loss of $1million.

“Net premiums written in -creased by four percent arisingfrom new business, and our con-tinuing efforts to achieve accept-

able underwriting ratios throughappropriate adjustments to premi-ums. Overall, claims, policy andactuarial benefits decreased by sixpercent over the prior year due tolower than anticipated claimsexperience in overseas health carecosts and our property and casual-ty businesses, partially offset bythe trend of increasing localhealthcare costs.”

Argus records $5.7m year-end lossNEWS REVIEW

CORE EARNINGS ARE HIGHEST IN THE COMPANY’S HISTORY; SHAREHOLDERS’ EQUITY AT $82 MILLION

[ 5 ]


The quarterly financial informa-tion on which Pricewater -houseCoopers reports in this

publication is drawn from a rangeof sources. Chief among them arethe company’s unaudited (or, atyear-end, audited) results, reportsto the US Securities and ExchangeCommission and material madepublic by the company for a rangeof reasons.

Regulators, industry analystsand rating agencies pour over thesame information, basing their cal-culations and outlook on reporteddata, as filtered through their mar-ket and professional knowledge.Thousands of pages of data arereviewed, chewed over, analysedand tested. Various GenerallyAccepted Accounting Principles(GAAPs) and International Fin -ancial Reporting Standards arebrought to bear.

Yet accounting is an odd prac-tice and the truth is that the wholeexercise is based not on scientifi-cally proven data, but on estimates.That’s a less outrageous assertionthan it sounds, especially whereinsurance companies are con-cerned.

Let’s start with the basic prem-ise on which balance sheets and allderivative data are drawn up. Abalance sheet is a snapshot of acompany’s financial condition at aparticular moment. Balance sheetsare produced on a number of broadand specific assumptions. Anexample of the former is the ‘goingconcern basis’, which assumes thatthe company and the world willcontinue to operate past the bal-ance sheet date much as they didbefore it, and therefore that thecompany should be considered agoing concern. An example of thelatter, in insurance, is loss reserves,but we’ll get to that.

Insurance accounting profes-sionals work within narrow toler-ances. They must follow the rulesof, and answer to, various account-ing boards, institutes and govern-ments under whose licences theyoperate. There are rules, often

thousands of pages of rules, andwoe betide the individual or com-pany that chooses to ignore any ofthem.

Public companies are requiredto produce quarterly financialstatements. These three-monthlyfinancial status reports are thelifeblood of the markets. But quar-terly reporting is a bad model foran insurance company, and a verybad model indeed for a companywith long-tail liabilities.

Insurance is a long game. Asthe bedrock on which commerce isbuilt, its goal is longevity, to sur-vive until the claims fall due. Incertain lines, such as prop cat, con-sistent forward financial motion,quarter in and quarter out, is nei-ther expected nor possible for eventhe best-managed company. If youinsure cities against the cost ofhurricanes, some years the bearwill eat you.

Perfect evidence of the impro-priety of quarterly balance sheetsfor insurance companies was pro-vided after March 11, when Japanwas hit by earthquake, tsunami andpossible nuclear meltdown. In -surers had just 20 days from thefirst moment, perhaps two weeksonce events had settled into a scarynorm, to produce definitive finan-cial statements outlining the likelycosts they faced as a result of thedisasters.

Best guess was all anyone coulddo. Corporate estimates werescared up based on modelled lossesin the context of early estimatesfrom outside agencies. Secondquarter results contained moreprecise estimates, but they, too, willbe corrected on a quarterly basis as

more information comes to lightduring the claims process. In somecases, it will be years before liabili-ty is settled and a final calculationpossible.

Corrections to estimated lossreserves show up in subsequentquarters as “favourable” or “un -favourable” developments in sub-sequent income statements. Theevents to which this line itemrefers occurred before the currentreporting period, yet the receipt ofnew information in the currentperiod qualifies loss development,effectively, as a profit or a loss inthe current period.

Employees’ benefits are oftenbased on performance. An em -ployee might well earn a bonusbased on the financial conse-quences of events that happenedbefore he or she joined the compa-ny, ignoring next year’s adjust-ments. With the reality of eco-nomic facts about events takingyears to unfold, employees receivebonuses based on poor data, buthave often left the company withtheir bonuses in their pockets bythe time the correct data becomesavailable.

The financial statements ofinsurance companies are estimates.QED.

The human factorTwo insurance industry titans pre-sented themselves for a sharedinterview some years ago. Both ledcompanies that were having pooryears, financially. Each companywas, in fact, doing well in its then-current year, but old mistakes andspots of bad luck had dented cur-rent year earnings. I asked if the

two men were not tempted to putall their troubles into the presentyear, have a stinker, and then startthe following year with cleanslates.

Both replied that they were notallowed to do so, that the rules ofengagement precluded any kind ofhuman intervention in the calcula-tion of the numbers. My memorysuggests that both men smiled asthey said it, as if acknowledgingwhat we all knew, which is that agood degree of wiggle room is notonly permitted in, say, estimatingloss reserves, but is often relied on.

Since loss development occursin more or less every quarter, oneway or another, it is understoodthat financial executives are mak-ing their best guesses. In so doing,they are expected to act neutrally,eliminating their company’s inter-ests in the equation. But no oneworking for a company can dothat, not even internal auditors,ultimately, which is why annualindependent audits and ratingagencies are required.

Obviously, a better system isneeded, but one is not likely toappear any time soon. Investorsdrive corporations and their repre-sentatives insist on quarterly infor-mation at a minimum. Lloyd’s,that bastion of tradition, until rela-tively recently had its syndicatesdraw up financial statements everythree years. Now it, too, has suc-cumbed to the widespread Britishdesire for everything Americanexcept Americans.

Some Lloyd’s practitioners stillreport formally on an ‘interim andfinal,’ i.e. half-yearly, basis, butmost offer quarterly advice orcommentary, for fear of beingnoticeable by their omission, thesame logic that draws reinsurers toMonte Carlo every year.

All corporate earnings are esti-mates, not just those of insurancecompanies. That’s just the way it is.Roger Crombie is a charteredaccountant and a Fellow of theInstitute of Chartered Accountants inEngland and Wales

ANALYSIS

Conforming to an ill-suited systemROGER CROMBIE LOOKS AT WHY INSURANCE ACCOUNTING IS A CURIOUS BEAST

‘Quarterly reporting is a bad modelfor an insurance company, and avery bad model indeed for a company with long-tail liabilities.Insurance is a long game’

[ 6 ]


NEWS REVIEW

[ 7 ]

‘Golden age’ for insurance industryPLUMERI: ‘GLOBAL DEMAND FOR INSURANCE WILL DWARF THE CAPITAL AND CAPACITY OF TODAY’S INSURANCE MARKET’

Bermuda has signed a Tax InformationExchange Agreement (TIEA) with Argentina. Itis the 27th such agreement to be signed withBermuda. Premier Paula Cox said the agree-ment recognised the growing importance oftrade with Latin America.

“This treaty relationship enhances the deal-ings between the two countries and enablesus to pursue more matters of mutual interest.Our TIEA with Mexico has recently come intoforce and the TIEA with Argentina is also com-municating the message that Bermuda recog-nises the value of opening trade relationshipswith the Latin American market.”

She added: “Bermuda knows that interna-tional business is a key driver of revenue forthe country and for our GDP and that theTIEA’s we have signed with our many tradingpartners around the world contribute tostrengthening our international reputation. It is

the quality of our international reputation anddomestic infrastructure that attracts andretains international business.”

The agreement with Argentina provides fora full exchange of information on criminal andcivil tax matters between the two countriesand includes provisions to protect the confi-dentiality of information provided, as well asadhering to public policy and provisions relat-ed to protecting legal privilege.

Bermuda signed its first TIEA with the US in1988, and has since signed TIEAs with a totalof 27 countries including Canada, NewZealand, Japan, the UK, China, France,Germany, Ireland, Sweden, Norway, Finlandand Denmark.

The Premier said the signing emphasised“that Bermuda’s business model is a positiveand well-balanced component of the globalfinancial system.”

The insurance industry is facing a “golden age”of opportunity. That was the prediction madeby Joe Plumeri, Chairman and CEO of

Willis Group Holdings, in his opening keynoteaddress at this year’s Bermuda Insurance DaySummit.

“Over the course of the 21st century, thewealth and insurable value that the explodingglobal middle class will create will be unprece-dented in history,” he said.

“The resulting global demand for insurancewill dwarf the capital and capacity of today’sinsurance market.”

Discussing the ways that the insuranceindustry, and in particular Bermuda, stepped upto pay claims after 9/11 and how it innovated torespond to new risks in the past, Mr Plumerisaid that the industry would rise to the newchallenges presented by the growth of the bur-geoning economies of Brazil, Russia, India andChina by “harnessing the strength of the globalcapital markets to provide tailored insurance forhome and business.”

“The new middle class will need brokers thatunderstand them and their industries,” he said.“They’ll need carriers who are innovative, finan-cially secure and who are there when they needthem — carriers with a reputation for payinglegitimate claims quickly.”

The golden age of insurance will also bespurred by developments in the West, MrPlumeri said, and particularly in the US where

economic troubles are reducing the govern-ment’s appetite for public insurance.

Citing talk of a scaling back of the terrorismbackstop and the unsustainability of theNational Flood Insurance Programme, MrPlumeri said that: “As the public sectorinevitably retreats, opportunities will be createdfor the insurance industry in many areas.”

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Joe Plumeri: “The wealth and insurable value that the exploding global middle class will create

will be unprecedented in history”

New agreement with Argentina


[ 8 ]

Underwriters and catastrophemodellers are learning from astring of major earthquake

losses, leading some to call formore realistic pricing to betterreflect potentially higher exposurelevels.In recent years, insurers and

reinsurers have kept a watchful eyeon their hurricane exposures aftersuffering massive losses fromHurricanes Rita, Wilma andKatrina in 2005, and Ike in 2008.But 2010 and 2011 have been areminder of the potentially hugecosts and unpredictable nature ofearthquake risks.After a period of several years in

which hurricanes have been grab-bing all the headlines, earthquakerisk has been the number onecatastrophe peril since the begin-ning of 2010, with quakes in Haiti,Chile, New Zealand and Japan,”said Robert Muir-Wood, of catas-trophe modelling firm RMS.More recently, underwriters

were reminded of the unpre-

dictable nature of earthquakeswhen a rare magnitude 6 earth-quake shook large swathes of theEastern US and Canada. Thequake, which prompted evacua-tions in New York, caused damageto buildings in Richmond, Wash -ington DC and Baltimore, as wellas triggering the shutdown of twonuclear reactors.Insured losses from the Virginia

quake are thought to be relativelylow — less than $100 million —although catastrophe modellingfirm EQECAT said losses couldhave cost insurers $2 billion hadthe quake been magnitude 7.The probabilities of the size of

loss of the Japan and New Zealandearthquakes were not that extreme,but unique factors meant they

proved expensive for insurers andreinsurers, said Dr Jayanta Guin ofanother catastrophe modellingfirm, AIR Worldwide.The Christchurch New Zea -

land earthquake in February was asmall event of magnitude 6.3.However it proved costly becauseit occurred on a previouslyunknown fault close to the city,was shallow and because of thehigh degree of liquefaction, saidDr Guin.The losses generally confirmed

the expectations of catastrophemodels — the Chile earthquakewas consistent with modelled pre-dictions — but the losses have alsohighlighted some key modellingissues, said Mr Muir-Wood.For example, the September

2010 New Zealand earthquakeoccurred on a previously unknownfault and itself triggered otherhighly damaging earthquakes clos-er to the city of Christchurch overa period of months.“This kind of behaviour, when

one earthquake can trigger a cas-cade of other main shocks, is by nomeans unprecedented — and willnow need to become a standardelement of catastrophe modelling,”he said.Changes will now be made to

earthquake models as a result ofthe New Zealand and Japan earth-quakes, said Mr Muir-Wood, andthis is likely to change underwrit-ers’ view of the risk, he added.Earthquakes are well and truly

back on underwriters radars, withmany talking of a need for higherrates and a review of their accumu-lated earthquake exposure.Surprises, such as the cascadeeffect, the high cost of settlingclaims and the degree of liquefac-tion in New Zealand, as well as the

ANALYSIS

The magnitude nine earthquake and subsequent tsunami in Japan in February, left a trail of devastation across vast areas and was felt in Beijing, more

than 1,500 miles from the epicentre

Earthquakes shake reinsurers’ riskSTUART COLLINS ASKS WHY REASSESSINGEARTHQUAKE EXPOSURE IS HIGH ON UNDERWRITING AGENDAS


size and location of the Japanearthquake and tsunami, are lead-ing many to reconsider the waythey view quake risk in general.

The earthquakes in NewZealand and Japan in the past yearhave heightened underwriters’awareness of quake risk, even inunaffected zones like California,said Robert Childs, ChiefUnderwriting Officer at Ham -ilton-Bermuda-based Hiscox Ltd.For example, catastrophe under-writers are now considering theimplications of a tsunami sweepingacross the US West Coast, a riskthat is not currently reflected inpricing, he added.

Many reinsurers diversified intoearthquake exposures after suffer-ing a series of large hurricane loss-es in the mid to late 2000s. Theincreased competition for earth-quake business put pressure onrates, with some reinsurers suffer-ing disproportionately high lossesfrom recent quakes, said Mr Childs.

Earthquake risk has been at theforefront of catastrophe under-writers’ minds following the lossesof the past year, he added.

“Underwriters are saying thatthey cannot continue to writeearthquake at low rates on line.The recent losses are a healthreminder of the importance of get-ting the right price for the risk, sothere will be pressure on rates inearthquake zones.”

International markets in Lon -don and Bermuda are likely to takea firm line on earthquake pricing,said Mr Childs. Both markets havea proven appetite for earthquakebusiness and will continue to do soif the price is right, he added.

Underwriters have alreadyresponded to the losses with priceincreases in Japan and NewZealand. According to reinsurancebroker Aon Benfield, the Julyrenewals saw price increases forJapanese cedents of between 30percent and 50 percent, with rein-surance rates in New Zealand ashigh as 100 percent. However,plentiful capacity continues tohold prices steady in most quakeexposed regions, including the US,Latin America, China and Europe.

On-going seismic activity inNew Zealand is still a source ofconcern for reinsurers, AonBenfield said. “The effects of theceded losses and heightened seis-mic activity resulted in a signifi-cant reappraisal of the risk withpricing, attachment, reinstate-ments and capacity all being scru-tinised and subject to change.”

The number of intense andcostly earthquakes to strike in thepast year-and-a-half has led someto suggest there may be an under-

lying trend toward a period ofgreater quake activity. However,there is little evidence to supportsuch a theory, said Mr Muir-Woodand Dr Guin. Earthquake activityremains steady, although morequakes have occurred close to pop-ulated areas with high levels ofinsurance penetration, resulting inlosses for insurers, they observed.

The recent run of losses — inparticular the relatively high costof a moderate earthquake in NewZealand and the devastation

wrought on Japan — have shownlarge earthquake losses are lessuncommon than some may previ-ously have thought.

There is a two-percent chanceof a $50 billion or greater accumu-lated earthquake insured lossworldwide in any one year, said DrGuin. The combined losses inNew Zealand and Japan are likelyto be around $50 billion, he said.

“This reminds us that there is alot of risk out there for underwrit-ers,” he added.

ANALYSIS

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Bermuda I Cayman Islands I Guernsey I Switzerland

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‘This kind of behaviour, when one earthquake can trigger a cascade of othermain shocks, is by no means unprecedented — and will now need tobecome a standard element of catastrophe modelling’

[ 9 ]


Implementation of Europe’smuch-heralded Solvency IIregime looks set to be delayed

until 2014 — one year later thaninitially hoped.

While some firms are nothappy with the prospect of furtherdelay, the additional lead-in timewill give regulators and insurersmore time to prepare.

For much of the more thandecade-long development ofSolvency II, the intended imple-mentation deadline was set for late2012. However, as the deadlinedate has drawn closer, it hasbecome apparent that legislators,as well as some regulators andinsurers, have much work to do. Inparticular, legislative delays andwrangling over key outstandingissues have left insurers without afinal set of rules to go by.

Talk of a delay surfaced asEuropean legislators hammer outdetails of Solvency II final imple-mentation measures and theOmnibus II Directive. Both theEuropean Council and Par -liament-the two bodies that mustreconcile their proposals in orderto pass legislation-have proposed adelay to implementation.

Proposals from the EuropeanCouncil and Parliament are simi-lar, said Paul Clarke of Price -

waterhouseCoopers. “There is nowreasonable certainty that the out-come will be a January 1, 2014deadline for implementation.Insurers will continue to be regu-lated until then on a Solvency Ibasis, although they are likely to berequired to supply Solvency IIinformation — a kind of softlaunch — in 2013,” he said.

The consensus is positive forthe industry because it means theend of a distracting debate aboutwhether or not there will be adelay, said Mr Clarke. However,insurers that have spent millionspreparing for implementation in2013 are not happy about theprospect of delay.

“Lloyd’s does not want a delayto implementation,” said SeanMcGovern, General Counsel forthe London-based insurance mar-ket. “We have been investing verysignificant amounts of money andmanagement time to ensure we areready for a 2013 start and are con-fident we will be ready. A delay willonly drive up costs and leave theindustry with a continuing cloudof uncertainty hanging over it.”

Some insurers that are set tomeet requirements on the originaldeadline are lobbying for anopportunity to “opt-in” to SolvencyII early. This would allow them to

take advantage of their own inter-nal models, and avoid duplicationof reporting, they argue.

The European body represent-ing insurers, the CEA, says thatthere is support for an approachwhereby legal transposition ofSolvency II would take place asplanned in 2013, but supervisorsand industry would have addition-al time following transpositionbefore full application.

Insurers would like an appro-priate period between achievinglegal certainty — the issuing offinal implementation rules-and thefull implementation of SolvencyII, said a spokesperson for theCEA. For example, insurers willneed at least two years from theadoption of implementing techni-cal standards in order to imple-ment the necessary systems to sup-port quantitative supervisoryreporting, the spokesperson said.

The delay should be welcomedby the industry because a lot of thetechnical detail is still to befinalised — such as capital chargesfor catastrophe risk — said MrClarke. Getting clarity on areas ofdisagreement is now the mostimportant issue for insurers,although this is not expected untilautumn, with final rules not likelyuntil well into 2012, he added.

The delay will also give breath-ing space for countries likeBermuda and Switzerland that areseeking regulatory equivalencewith Solvency II.

Equivalency assessments couldpotentially be carried out against afinal Solvency II rule book, as wellas giving non-EU countries extratime to make regulatory changes tosecure equivalent status, he added.

The delay is also being wel-comed by the Bermudian supervi-sor, the Bermuda MonetaryAuthority (BMA), which is seek-ing regulatory equivalence withThe European Union. “This will beviewed as ultimately beneficial, as itwill give EU regulators, third coun-try regulators seeking equivalencewith the EU, and the market addi-tional time to prepare for equiva-lence,” said a BMA spokesperson.

“Extension of the implementa-tion date for Solvency II is a posi-tive indication that the authoritiesin Europe have taken into accountthe input of those who will bemaking adjustments to complywith Solvency II, and theEuropean Insurance and Occ -upational Pensions Authority andEuropean Commission are takinga pragmatic view on implementa-tion of the Directive.”On the road to Solvency II: page 18

ANALYSIS

Twelve-month delay for Solvency IISOME INSURERS LOBBY FOR THE OPPORTUNITY TO OPT IN EARLY. BY STUART COLLINS

[ 10 ]

W

Bermuda’s bid to reach an agree-ment with the European Union onthe equivalence of insurance reg-ulation is progressing well, withthe Island’s regulator planningadditional changes to meetEuropean requirements.

The Bermuda MonetaryAuthority (BMA) continues tomake changes to the domicile’sinsurance regulatory regime withEurope’s Solvency II in mind.

A European Insurance andOccupational Pensions Authority(EIOPA) consultation documentpublished in August on

Bermuda’s application for equiva-lence — which included a prelimi-nary assessment — was generallypositive.

EIOPA says that that Bermudameets the criteria for equivalenceassessments under Solvency II forcommercial insurers — Classes3A, 3B and 4 — but with certaincaveats. For example, EIOPA high-lighted the need for stricter gover-nance and reporting requirements,as well as the need for furtherdevelopment of group supervision.

EIOPA also noted that theregime applicable to insurers of

other classes does not meet thecriteria.

“For several years we haveproactively focused our frameworkchanges in terms of equivalenceon the commercial insurance mar-ket in Bermuda,” the BMA said.“Therefore, the BMA appreciatesEIOPA reaching its conclusionsregarding our commercial frame-work while distinguishingBermuda’s captive sector regula-tions, a position that we expected.”

The BMA also said that italready has under active consid-eration, EIOPA’s suggestions or

caveats on areas for additionalregime enhancements. “Since thisassessment is the first phase of aprocess that will conclude in 2012with the EU Commission’s finaldecision on equivalence, in theinterim period we can concludework on these areas and the vari-ous work streams already inprogress,” the BMA said.

Issuing of the final Level 2implementing measures forSolvency II will bring a further levelof clarity to the practical imple-mentation of the Directive, saidthe BMA.

‘Positive’ progress on equivalence


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[ 12 ]

3

ANALYSIS / PWC Q2 2011OPERATING RATIOS

FINANCIAL STRENGTH RATINGS

QUARTERLY LOSS RATIOSQ2 2011 Q2 2010 Q2 2009

ACE 62.9% 58.8% 58.2%Alterra 60.7% 54.6% NAArch 67.1% 58.3% 57.0%Aspen 71.0% 57.7% 54.8%Allied World 66.4% 55.7% 53.3%Axis 67.3% 54.9% 53.5%Endurance 74.4% 64.2% 62.4%Everest Re 70.8% 65.1% 59.2%Flagstone Re 67.3% 65.4% 30.8%Hiscox NA NA NAIPC Holdings NA NA (8.7%)Max Capital* NA NA 65.1%Montpelier 68.6% 29.4% 23.6%PartnerRe 71.4% 57.6% 53.6%Platinum 92.4% 37.3% 53.7%Renaissance Re 69.6% 14.6% 17.6%Validus 48.7% 44.5% 38.0%White Mountains 59.0% 64.6% 58.9%XL Group 63.1% 61.4% 60.8%

QUARTERLY EXPENSE RATIOSQ2 2011 Q2 2010 Q2 2009

ACE 29.7% 30.9% 29.5%Alterra 33.0% 28.7% NAArch 32.5% 31.7% 30.2%Aspen 34.0% 29.2% 32.9%Allied World 31.0% 31.3% 29.8%Axis 31.6% 31.3% 26.9%Endurance 27.5% 26.8% 27.2%Everest Re 27.2% 28.1% 28.7%Flagstone Re 39.8% 38.0% 37.9%Hiscox NA NA NAIPC Holdings NA NA 32.3%Max Capital* NA NA 25.7%Montpelier 34.0% 30.4% 37.9%PartnerRe 30.3% 32.2% 29.9%Platinum 27.0% 30.1% 23.2%Renaissance Re 25.9% 27.7% 26.2%Validus 34.5% 30.4% 33.9%White Mountains 46.7% 41.0% 40.7%XL Group 31.8% 30.8% 32.2%

QUARTERLY COMBINED RATIOSQ2 2011 Q2 2010 Q2 2009

ACE 92.6% 89.7% 87.7%Alterra 93.7% 83.3% NAArch 99.6% 90.0% 87.2%Aspen 105.0% 86.9% 87.7%Allied World 97.4% 87.0% 83.1%Axis 98.9% 86.2% 80.4%Endurance 101.9% 91.0% 89.6%Everest Re 98.0% 93.2% 87.9%Flagstone Re 107.1% 103.4% 68.7%Hiscox NA NA NAIPC Holdings NA NA 23.6%Max Capital* NA NA 90.8%Montpelier 102.6% 59.8% 61.5%PartnerRe 101.7% 89.8% 83.5%Platinum 119.4% 67.4% 76.9%Renaissance Re 95.5% 42.3% 43.8%Validus 83.2% 74.9% 71.9%White Mountains 105.7% 105.6% 99.6%XL Group 94.9% 92.2% 93.0%NA — No data applicable

A M BEST RATING S&P RATINGJune 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010

ACE A+ A+ AA– A+Alterra A A A– A –Arch A A A+ A+Aspen A A A AAllied World A A A A –Axis Specialty A A A+ A+Endurance A A A AEverest Re A+ A+ A+ A+Flagstone Re A– A– NR NRHiscox A A A AIPC Holdings NA NA NAMax Capital NA NA NAMontpelier A– A– A– A –PartnerRe A+ A+ AA– AA–Platinum A A A ARenaissance Re A+ A+ AA– AA–Validus A– A– A– NRWhite Mountains A– A– A– A–XL Group A A A ANR — Not rated by S&P NA — No data applicable

Outlook● Direction of rate increases par-tially dependent on outcome ofwind season plus recalibration ofwindstorm models. ● Low interest rate environmentdue to continue and cause addi-tional rate pressure on long-taillines. Many entities within thegroup have short duration portfo-lios that will be reinvested in thenear term at low yields.

Earnings● Gross premiums written in -creased by 5 percent, driven byreinstatements, rate increases andsome new business/increases onexisting programmes. There weresome decreases in individual linesdue to unfavourable pricing. ● Mid-year property catastrophepricing generally positive withreports of Florida rate increases of5–10 percent and high double digitincreases for Australia, New Zea -land and Japan.● The Q2 combined ratio was100 percent compared with 84

percent in 2010. The increase wascaused by US storm activity andadverse development on the NewZealand earthquake, partially off-set by favourable prior year reservedevelopment.● Modest investment incomegrowth was driven by higherinvested assets offset by weakalternative investment returns. ● Q2 net income, although sig-nificantly improved from Q1,decreased sharply in comparisonwith the prior year.● On a year-to-date basis, thegroup recorded a net loss of $1.1bncompared with net income of$4.3bn in 2010.

Capital Management● Share repurchase activity downand generally on hold through theremaining hurricane season. Fut -ure activity dependent on rateenvironment approaching Januaryrenewals plus impact of recent riskmodel changes.● Financial strength ratings wereconsistent with the prior quarter.

Q2 2011 Q2 2010 Q2 2009ACE 5,423 5,154 5,117Alterra 564 399 NAArch 912 817 912Aspen 582 545 534Allied World 520 494 493Axis 1,046 940 915Endurance 503 490 559Everest Re 988 1,014 974Flagstone Re 346 370 329Hiscox NA NA NAIPC Holdings NA NA 128Max Capital NA NA 397Montpelier 217 200 184PartnerRe 1,082 1,140 846Platinum 148 162 215Renaissance Re 642 507 855Validus 605 517 425White Mountains 551 920 957XL Group 1,863 1,600 1,652

Q2 2011 Q2 2010 Q2 2009ACE 3,757 3,233 3,266Alterra 349 293 NAArch 643 623 699Aspen 460 480 429Allied World 355 339 334Axis 840 735 707Endurance 487 456 434Everest Re 1,040 990 957Flagstone Re 171 232 187Hiscox NA NA NAIPC Holdings NA NA 96Max Capital NA NA 229Montpelier 152 148 141PartnerRe 1,107 1,105 826Platinum 172 191 232Renaissance Re 217 212 380Validus 426 438 328White Mountains 496 859 898XL Group 1,398 1,303 1,430NA — No data applicable

GROSS PREMIUMS WRITTEN $M

NET PREMIUMS EARNED $M


[ 13 ]

Based on a famously staged tourism photograph, this portrait (above) refers to a law of the time that underscored Bermuda’s conservative dress code.

Net income (loss) attributable to common shareholders ($m) Fully diluted earnings (loss) per share ($)Q2 2011 Q2 2010 Q2 2009 Q2 2011 Q2 2010 Q2 2009

ACE 607 677 535 1.77 1.98 1.58Alterra 33 103 NA 0.30 1.13 NAArch1 92 237 152 0.67 1.48 0.81Aspen 10 103 105 0.06 1.28 1.22Allied World 94 184 114 2.36 3.47 2.22Axis 101 205 159 0.79 1.51 1.06Endurance 37 55 145 0.87 0.97 2.42Everest Re 131 157 273 2.41 2.70 4.43Flagstone Re (20) 13 68 (0.29) 0.17 0.80Hiscox NA NA N/A NA NA NAIPC Holdings NA NA 174 NA NA 3.11Max Capital NA NA 44 NA NA 0.76Montpelier 21 70 159 0.33 0.96 1.81PartnerRe 116 182 465 1.69 2.31 8.10Platinum (20) 124 98 (0.55) 2.68 1.90Renaissance Re 25 210 271 0.48 3.66 4.32Validus 110 180 138 1.05 1.44 1.74White Mountains 12 3 180 1.48 0.28 20.35XL Group 226 192 80 0.69 0.56 0.23NA — No data applicable 1. Where the information is available, Arch share and per share amounts have been restated for the Q2 three for one stock split

Q2 2011 Q2 2010 Q2 2009ACE 24,113 21,410 16,561Alterra 2,793 2,927 NAArch 4,441 4,398 4,030Aspen 3,105 3,304 2,973Allied World 3,044 3,469 2,741Axis 5,333 5,495 4,909Endurance 2,670 2,844 2,476Everest Re 6,153 6,036 5,545Flagstone Re 947 1,304 1,095Hiscox 1,834 1,803 1,592IPC Holdings NA NA 2,014Max Capital NA NA 1,363Montpelier 1,620 1,621 1,597PartnerRe 6,632 7,071 4,768Platinum 1,696 2,105 1,953Renaissance Re 3,515 3,775 3,404Validus 3,543 3,603 2,152White Mountains 4,216 4,160 3,204XL Group 10,628 10,507 7,473NA — No data applicable

MARKET CAPITALISATION

QUARTERLY EARNINGS (LOSS) DATA

SHAREHOLDERS’ EQUITY ($M)

Q2 2011 Q2 2010 Q2 2009Common shares issued Market value $ Common shares issued Market value $ Common shares issued Market value $

ACE 337,912,324 65.82 338,755,604 51.48 336,097,451 44.23Alterra 105,794,521 22.30 118,643,363 18.78 NA NAArch1 132,771,524 31.92 148,891,720 24.83 182,942,418 19.53Aspen 70,833,000 25.57 76,700,990 24.74 83,021,860 22.34Allied World 37,945,043 57.19 49,407,301 45.38 49,524,492 40.83Axis 125,811,000 30.96 120,254,000 29.72 137,710,000 26.18Endurance 40,509,263 41.33 52,663,877 37.53 57,090,980 29.30Everest Re 54,346,000 81.75 56,242,019 70.72 60,852,944 71.57Flagstone Re 70,058,168 8.43 78,009,113 10.82 84,864,844 10.30Hiscox 387,050,000 6.70 377,004,000 5.11 374,142,000 4.78IPC Holdings NA NA NA NA 56,193,170 27.34Max Capital NA NA NA NA 56,598,975 18.46Montpelier 61,581,768 18.00 73,288,093 14.93 87,448,434 13.29PartnerRe 67,737,776 68.85 75,349,855 70.14 57,950,306 64.95Platinum 37,324,000 33.24 41,094,952 36.29 49,778,459 28.59Renaissance Re 51,753,000 69.95 54,872,000 56.27 62,345,000 46.54Validus 98,763,928 30.95 111,407,993 24.42 76,151,473 21.98White Mountains 7,958,589 420.16 8,532,442 324.20 8,857,586 228.91XL Group 305,233,983 21.98 342,010,919 16.01 342,175,328 11.46NA — No data applicable 1. Where the information is available, Arch share and per share amounts have been restated for the Q2 three for one stock split

Net income (loss) attributable to common shareholders ($m) Fully diluted earnings (loss) per share ($)Q2 2011 Q2 2010 Q2 2009 Q2 2011 Q2 2010 Q2 2009

ACE 866 1,432 1,102 2.54 4.21 3.27Alterra (14) 140 NA (0.13) 1.88 NAArch1 111 448 292 0.80 2.74 4.67Aspen (142) 116 221 (2.16) 1.43 2.61Allied World 102 318 245 2.57 5.98 4.79Axis (283) 317 275 (2.38) 2.28 1.84Endurance (54) 107 220 (1.36) 1.88 3.65Everest Re (185) 134 381 (3.40) 2.28 6.19Flagstone Re (181) 45 104 (2.60) 0.55 1.21Hiscox (141) 120 NA (0.37) 0.31 NAIPC Holdings NA NA 182 NA NA 3.25Max Capital NA N/A 88 NA NA 1.54Montpelier (83) 80 211 (1.34) 1.08 2.42PartnerRe (700) 254 599 (10.32) 3.13 10.43Platinum (178) 140 182 (4.75) 2.95 3.47Renaissance Re (223) 375 368 (4.39) 6.37 5.90Validus (62) 61 232 (0.68) 0.46 2.94White Mountains (17) (37) 211 2.06 (4.24) 23.82XL Group (2) 320 258 (0.01) 0.93 0.76NA — No data applicable 1. Where the information is available, Arch share and per share amounts have been restated for the Q2 three for one stock split

CUMULATIVE YTD EARNINGS (LOSS) DATA


Q2 ANALYSIS

Stormy weather in a tough yearW ith a couple of exceptions, the

Bermuda insurance and rein-surance companies that PwC

analyses had a profitable secondquarter. Under the circumstances,that was pretty good going: like thefirst, the second quarter of 2011was remarkable for the frequencyand intensity of claims.The first quarter saw major

insured losses from flood damagein Australia from Cyclone Yasi(estimated insured losses $6.5 bil-lion), an earthquake in Christ -church, New Zealand ($12 bil-lion); and the Tohoku earthquakeand tsunami ($30 billion). The sec-ond quarter was costlier, as dis-cussed below. Then an earthquakein Virginia and Hurricane Ireneopened the third quarter, bringingabout a majority view that themarket had turned. To what extentit has turned will be made clear bythe end of the Atlantic hurricaneseason.At the start of the second quar-

ter, the insurance markets Ber -muda serves were essentially inequilibrium, give or take a few per-centage points. Rate increases incat-related lines at July 1 werewidespread, in part because theeffect of the windstorm modelupgrades this spring has yet to befully calibrated in real time.As ever, the end of this soft

market has been accompanied byappalling events and catastrophiclosses that work their way throughto the companies in the PwCgroup, where the buck stops.

EarningsThat the Bermuda companies metsecond quarter claims largely outof earnings is a more than cred-itable showing. As a group, per-formance in the second quarter of2011 was down from a year earlier,but that’s not the relevant yardstickthis year. Making money in theface of the worst tornadoes in his-tory; adverse loss developments

from Q1 events, notably NewZealand and Japan; a combinedratio of 100 percent for the secondquarter; and a continuing essen-tially zero interest rate environ-ment, is not to be sniffed at.For the six months to June 30,

most of the companies remain inloss. Second quarter profits werenot enough to plug the hole dug byan awful Q1, although a few com-panies were ahead at June 30, orwithin striking distance of break-even. That may not sound likemuch, but this year it representssolid performance. That tells us that a number of

the companies have reached thestage in their development whenonly a very, very bad year indeedwould be looked at as a balancesheet, rather than an income state-ment, event. That’s a good place tobe in business terms, en route tothe sort of permanence all insur-ance and reinsurance companiesset out to achieve.Time was that a quarter’s gross

and net premiums written told thetale almost by themselves. Withthe market at a neutral point, how-ever, most of the difficult businesshas been priced reasonably, per-haps after being turned away else-where. Gross premiums are up forthe PwC group by five percent yearon year, but many of the compa-nies have increased writings by 10to 15 percent. Even with theseincreases, the ratio of gross premi-ums to capital remains conserva-tive for the group.

Balance sheetsA quick look at the table of share-holders’ equity shows that, in mostcases, the large Bermuda compa-

nies have grown — some quite sig-nificantly — in the past two years,the end of the soft market era.Shareholders’ equity is up byalmost half at market leaders ACEand XL Group in the two years. AtACE, Evan Greenberg already hasa great name; at XL, MikeMcGavick is making himselfsomething of a legend. He turnedSafeco around and now, it may besaid, has done the same at XL.In the second quarter of 2011,

across the group, share repurchaseactivity fell as claims mounted andthe hurricane season approached.The companies’ financial strengthratings were consistent with theprior quarter. Balance sheets havebeen de-risked and have returnedto what Willis CEO Joe Plumerirefers to as “boring”, i.e. on theasset side, uneventful investmentportfolios that return more or lesswhat’s expected and let insurersconcentrate on the liability side ofthe business.Managing clients’ risk, after all,

is the core competence; investmentmanagement is mostly farmed out.It looks as if 2011 will be the acidtest (is there an alkaline test?) forunderwriting discipline, the coreitself.By June 30, most of the compa-

nies’ loss provisions for the yearhad been reached or exceeded. It’llbe fingers crossed for the secondhalf of the year, for which the lossexperience will dictate the nextstage of development of many ofthe mid-sized Bermuda compa-nies. A major cat loss in the secondhalf of the year would probably setoff a cycle of sidecars, rechargedcapital and all the excitement thatentails. With the incidence of dis-

asters seemingly rising, and withAllied World, Validus and Berk -shire Hathaway already slugging itout for control of Transatlantic,how much more excitement couldwe stand?

Killer stormsThe most significant claims in thesecond quarter of 2011 arose fromwind, hail and quake. A string oftornadoes across the US was themost devastating and expensive inhistory. Hail events in the Midwestand Southern US and a secondChristchurch, New Zealand earth-quake rounded out a quarter thatsaw an estimated $20.8 billion inUS cat losses alone.April had an active weather

pattern across the 48 contiguousstates, with strong storms movingthrough the centre of the country,tapping into moisture from theGulf of Mexico as they maturedacross the mid-Mississippi Valley.La Niña conditions in the PacificOcean, unusually warm oceantemperatures in the Gulf ofMexico, and the increase of mois-ture in the atmosphere caused bythe warming climate, contributedto events.The majority of the quarter’s

losses, in lives as well as dollars,were due to devastating tornadoesin parts of the US Midwest andSoutheast in April (estimated costof insured losses $6 billion) andMay ($7 billion). April’s US stormactivity was the busiest monthsince records were first kept in1950. The final April count was753 tornadoes, easily beating theprevious record of 543 in May2003. The previous April recordwas 267 in 1974.

‘It’ll be fingers crossed for the second half of the year, for which the loss experience will dictate the next stage of development of many of the mid-sized Bermuda companies’

[ 14 ]

WITH THE MOST EXPENSIVE TORNADOES IN HISTORY – AND ASECOND QUAKE IN NEW ZEALAND – THE CLAIMS KEEP COMING.ROGER CROMBIE ANALYSES THE PREVIOUS QUARTER’S FIGURES


Two particularly vicious storm

clusters accounted for most of thelosses. The period from April 25 to28 saw an acute string of tornadoesthat killed more than 300 people inthe South and Midwest. The fourdays are being referred to as the“Dixie Outbreak.” A sad recordwas set on April 27 when morethan 330 people died in andaround Tuscaloosa, Alabama. Itwas the highest one-day tornadodeath toll in history, as 173 torna-does were recorded, a record for asingle storm system in moderntimes. Risk Management Sol -utions estimates that in the DixieOutbreak, about 70 percent of thelosses were in Alabama.On May 22, the city of Joplin,

Missouri took a direct hit from atornado more than half a milewide. An American Red Crossofficial stated that three-quartersof the city had been damaged. TheJoplin event may cost insurers $3billion. The weather system thatdevastated Joplin went on to causeanother half a billion dollars ininsured losses in Ohio.Christchurch, New Zealand

was then struck by a 6.0 magnitudeearthquake on June 13, the secondmajor event in that area this year($5 billion in damage). This quar-ter also saw major uninsured lossesfrom events such as the flooding ofthe Mississippi River from Illinoisto Louisiana ($2 billion) anddrought and wildfires in theSouthwest ($3 billion).The US National Weather

Service estimates that weather dis-asters have cost more than $35 bil-lion this year, based on insuranceestimates. “The nation is increas-ingly vulnerable to extreme weath-er,” National Weather ServiceDirector Jack Hayes said. “Theyear has been marked by floods,drought and tornadoes. Mean -while, a Texas heat wave has cost$5.2 billion in crop and livestocklosses so far. It doesn’t take a wiz-ard to predict that 2011 will godown in history.”

Now for the third quarter…Insurance executives who mighthave been hoping for a littlebreathing space in the third quar-ter had their hopes dashed onAugust 23, when a 5.9 magnitudeearthquake hit Virginia, its effects

felt from Washington DC up toNew England. Insured losses willnot exceed $100 million, whichmakes it a minor event in thisyear’s context.Not so Hurricane Irene, which

headed menacingly for, but thenspared, New York City. Irenepushed on into Canada to becomeone of the 10 costliest storms inhistory. 2011 will without doubt beremembered in the insuranceindustry as a tough, tough year;those words were written beforethe Monte Carlo Rendezvous,when something dramatic, terrible,deadly and expensive quite oftenhappens.

Our multi-local solutions address the challenges unique to insurance asset management.Increasingly, insurers are turning to us, one of the largest third-party managers of insurance assets*, to provide peace of mind. With over 140 dedicated professionals worldwide, we work relentlessly to help create shareholder value by enhancing performance, reducing costs, improving reporting and reducing your operational risk. Put our customized solutions to work for you and rest assured.*Insurance Asset Manager Annual Survey, December 2009, based on assets of December 2008

For more information please contact: North America - [email protected] | Europe - [email protected] | Asia - [email protected]

Deutsche Insurance Asset Management is the insurance asset management division of Deutsche Asset Management, the asset management arm of Deutsche Bank AG. This was prepared without

investment decision. It does not constitute investment advice or a

Let someone else lose sleep.Deutsche Insurance Asset Management.

2010

[ 15 ]

Transatlantic takeover uncertainPlans to take over Transatlantic Holdings Inc continue apace. InJune, Transatlantic Holdings Inc board rejected a hostile takeover bidfrom fellow insurer Validus Holdings Ltd, and remained committed toplans to combine the company with Switzerland-based Allied WorldAssurance Co Holdings AG, in an all-stock deal that is now worth$2.96 billion.

The board also adopted a one-year stockholder rights plan,commonly called a “poison pill,” a move used to avoid hostiletakeovers.

Bermuda-based Validus claimed its target was “spreading misin-formation” about its offer and maintained Transatlantic’s board wouldnot take part in good-faith discussions.

Transatlantic said it believed that the deal to combine with AlliedWorld “will provide greater long-term value potential to Transatlantic’sstockholders”. The deal was described as a merger of equals.

A Standard and Poor’s equity analyst has been quoted as sayingthat they “would not rule out additional overtures from other parties.”


When insurance industry giant RobertBenmosche retired in 2006, a lifetimedream of winemaking in Croatia beckoned.

The relentless daily diet of high pressureexecutive board meetings and global travel werereplaced by quiet contemplation tending hisvines as a hobby.

“In 2009 I am having a great time. You get tobe my age, you retire, and you go to Croatia. I’msingle and, you know, as a teenager you wantedall of that freedom but you just didn’t have themoney to do what you wanted to do. Can youimagine having the money and the freedom todo it and I was having a wonderful time with mylife of irresponsibility; a dream that came true.”

Then things changed — dramatically.“I remember sitting and watching television

and I remember Hank Paulson coming on tele-vision saying that we have a problem and that itis a big problem and the US Government isgoing to provide financing to AmericanInternational Group (AIG),” he told the recentBermuda Captive Conference.

Over the years, AIG had built upon its pre-mier global franchises in life and general insur-ance by expanding into a range of financial serv-ices businesses. One of these, created in 1987,was AIG Financial Products Corp (AIGFP), acompany that engaged as principal in a widevariety of financial transactions for a globalclient base.

In 1998, AIGFP began to sell credit defaultswaps to other financial institutions to protectagainst the default of certain securities. At the

time, many of these securities were rated AAA,the highest rating possible.

However, in late 2007 as the US residentialmortgage market began to deteriorate, the valu-ation of these securities declined severely. As aresult, AIG recorded significant unrealised mar-ket valuation losses, especially on AIGFP’scredit default swap portfolio, which led to sub-stantial cash requirements.

At the same time, AIG reported large unre-alised losses in its securities lending programmethat made short-term loans of certain securitiesit owned to generate revenues by investing inhigh-grade residential mortgage-backed securi-ties.

The collapse of respected financial institu-tions such as Bear Stearns and Lehman

[ 16 ]

PROFILE

THE WINEMAKING RETIRED INDUSTRY LEADER LURED BACKINTO BUSINESS BY AN IRRESISTIBLE CHALLENGE

Message in a bottle!Growing vines in Croatia was a retirement dream for Robert Benmosche

— but the insurance world soon enticed back the AIG President and CEO


PROFILE

Brothers sent shock waves throughout the worldeconomy. The crises at the US-sponsored mort-gage companies Fannie Mae and Freddie Macadded to the financial disruption. Credit mar-kets deteriorated rapidly, making it virtuallyimpossible to access capital.AIG’s credit ratings were downgraded, trig-

gering additional collateral calls and cashrequirements in excess of $20 billion. Althoughsolvent, AIG suddenly faced an acute liquiditycrisis.To stabilise AIG and prevent reverberations

throughout the economy, the Federal ReserveBank of New York (FRBNY) extended a two-year emergency secured loan of up to $85 billionto AIG on September 16, 2008.With the loan in place, the management

team developed a plan to sell many of AIG’sleading businesses around the world to pay backthe FRBNY loan with interest. However, AIGstill had to address its two principal liquidityissues: the multi-sector credit default swap port-folio and the securities lending programme.In November 2008, AIG and the FRBNY

announced a comprehensive plan to addressAIG’s liquidity issues and provide more timeand greater flexibility to sell assets and repay thegovernment. The plan included the creation byFRBNY of two financing entities, Maiden LaneII and Maiden Lane III, to acquire AIG’s secu-rities lending assets and the multi-sector collat-eralised debt obligations that were guaranteedby AIGFP’s credit default swaps. The entitieswere funded primarily by the FRBNY, with asubordinated capital contribution by AIG.Under the terms of the agreements, the

majority of any appreciation in the securitiesheld by the entities would go to the FRBNY,but a portion would be retained by AIG.In addition, the US Treasury purchased,

through the Troubled Asset Relief Programme,$40 billion of newly issued AIG perpetual pre-ferred shares. The proceeds were used to paydown a portion of amounts then outstanding ofthe FRBNY loan. The perpetual preferredshares carried cumulative compound dividendsat 10 percent per year.Although Maiden Lane II and III and the

government’s equity injection significantlyrelieved AIG’s liquidity pressures, the world

economy in general and the financial industry inparticular continued to falter. Asset valuationscontinued to decline and AIG’s losses increasedthrough the end of the year, taking a heavy tollon fourth quarter results.“I get this phone call in January 2009,”

explained Mr Benmosche. “It is from HankGreenberg who says that I need to do him afavour. I said ‘what is it?’ and I felt pretty badlyabout what happened with AIG. You can imag-ine 40 years of your life as CEO just about andyou watch the thing crumble before you eyes.“He said that they needed a CEO and he

wanted me to consider the job. I said ‘Hank, youcan’t offer that to me anymore, you just can’t’and he says to me, ‘Listen to me, this is going toget worse, there might be nothing left and thisindustry can not afford to have AIG fall apart inany of its parts. You just can’t afford it; we’ve gotto get this fixed. I want you to consider it, wehave a new president coming in, we have a newsecretary of treasury, I need you to tell me youwill consider it.’“I said ‘You know what Hank, for you I will

consider it. So I will get back to you. I will giveit some thought’ and I left and stupid me, Ithought he would never remember.“He calls me three weeks later. ‘When are

you coming back to New York?’ I said I wouldbe there next week. He said, ‘Good, we have tohave lunch. You haven’t given me your answer’and so I came back, had lunch, and Hank said‘You have to, you are the only guy I know thatcan do this’ and I said that it was really terrificthat he said that, but that I really didn’t want togive up my retirement but said that if you cansucceed I am happy to do it for you but onlyfor a short period of time. Trouble is nothingever happened with that. It never went any-where.”Up to his retirement in 2006, Mr Benmosche

was Chairman and CEO at MetLife. Duringhis tenure he oversaw MetLife’s acquisition ofGeneral American Travels Life and Annuityand New England Mutual as well as headingMetLife’s sales force in retail product develop-ment.Before joining MetLife he spent 13 years at

PaineWebber holding a number of positionsincluding Senior Vice President of Marketing,CFO of the retail brokers division, ExecutiveVice President of Operations and Technology,Director and Sales Manager for over 1,500investment advisors, and managed the merger ofKidder Peabody into PaineWebber. Prior tothat, he worked at Chase Manhattan Bank.A native of Brooklyn, his first job was driv-

ing a truck for Coca-Cola selling their bever-ages.“March came. I remember the big bonuses

and the thing before Congress and so on. Myfrustration of watching on television; I wasyelling at the television it didn’t do me any good.I said, ‘Tell them that they earned the bonus, tellthem.’ I was screaming at the television but they

weren’t listening to me they just went on and onabout the bonuses AIG shouldn’t have paid. Itwas wrong and of course the company went intoa tailspin.“Then, at the end of June I get a call initiat-

ed by the US Treasury to see if I will come inand take the job. I considered it and didn’t wantto do it, but in the end I realised that as a majorshareholder of MetLife, having devoted a lot oftime to building that company up to where it is,if AIG were to fail, this industry would take adecade to recover because everyone would beginto start seizing their assets.“We really had to start building the company

right from that point of time, and change thedirection, which is why I choose to take the job.If you want to sell out the company, I was notthe right guy. If you want to build it, get it right,sell off enough to be able to pay off the govern-ment, then I am the one that can do the job andthat is pretty much how we got to where we aretoday.”He said that AIG had survived because of

the ‘incredible talent’ of the company’s staff.“We have our people. It is unbelievable that

they are here and they take enormous pridebecause the fact is they work for AIG and theyhave a career here, and if we can pull this offthey actually have a history that they can beproud of. So it is really something that is veryemotional for a lot of people.”“We went out and did a survey of how they

felt in September as a reinforcement about thepeople of AIG, and 92 percent of 63,000 peopleat the time responded to the survey in two-and-a-half weeks. There is no company that I haveever worked with or for that has ever had thatkind of response rate and there was overwhelm-ingly positivity about all the things that I justdescribed.”He added: “Some of you who are in the

industry [in Bermuda] came from AIG. Wehelped train you in the industry, so the strengthis still here, the feelings are still here, the core isstill here, and the clients are still here. We don’thave the risk profile that got us into trouble, weare back to being a really strong solid insurancecompany.”

‘I felt pretty badlyabout what happened[to Hank Greenberg].You can imagine 40years of your life asCEO and you watchthe thing crumblebefore your eyes’

‘If you want to build[the company], get itright, sell off enoughto be able to pay offthe government, then I am the one that can do the joband that is prettymuch how we got towhere we are today’

[ 17 ]


On the road to Solvency IIA s the strategic consequences of

Solvency II become moreimmediate, many senior execu-

tives are re-examining their path toSolvency II compliance.

Why revisit the road mapnow?Impacted companies have thingsto do and limited time remainingin which to do them. In light ofrecent economic volatility and cur-rent economic, political and com-petitive landscapes, many seniorexecutives are re-examining theSolvency II road map. New direc-tions include changing the waycompanies are responding inter-nally as well as applying greaterinfluence externally.

How can a senior executivechange the direction?Shape your landscape. Key issuesremain unresolved and the European

Insurance and OccupationalPensions Authority (EIOPA) con-tinue to invite consultative input.Those wanting to shape the land-scape still have that opportunity.Lobbying efforts warrant considera-tion, provided the consequences arethought through. Groups can alsothink about how to maximise theeffectiveness of their lobbying —alone, with wider industry group-ings or from specific jurisdictions.EIOPA should not be the only tar-get of lobbying, local and foreignregulators also have an importantrole in shaping the landscape.

Customise your routeCompanies can organise theirgroup structure to enhance com-pliance efficiency. For example,companies may benefit from groupstructures that facilitate supervi-sion of non-European operationsby equivalent jurisdictions or by

using reinsurance arrangements inequivalent jurisdictions.

Capital requirements will alsovary between Europe and equiva-lent jurisdictions, particularlywhere some form of standard for-mula is used rather than a compa-ny’s own model, with knock-oneffects on the company’s return oncapital. On the road to SolvencyII, considering a customised groupstructure may provide a more sce-nic route than simply travellingalong the existing path.

Know where you’ve beenDiffering timelines betweenLloyd’s managing agents and com-panies in different jurisdictionshave left some groups racing forsubsidiary compliance while leav-ing cohesive, top down, group-wide approaches behind. This canbring senior executives to theintersection of duplicated effort

and increased cost.The best-prepared companies

have leveraged the learning gainedin one jurisdiction across others.They have policies written in a waythat allows a common coreapproach to be applied globally,based around a common internalmodel, consistent governancestructures, similar managementinformation, and common docu-mentation and evidencing frame-works. Opportunities to managethe cost of compliance by lookingin the rear-view mirror should notbe overlooked.

Keep your eyes on the roadThe regulatory environment is asignificant influence on cost, accessto markets and ease of doing busi-ness. More than ever, senior exec-utives who plan wisely and keeptheir eyes on the road ahead willget the greatest mileage.

ANALYSIS

[ 18 ]

Areas that senior executives may consider actingon, and those in governance positions shouldask about, are:Uncertainty about equivalenceThe August draft report of the EuropeanInsurance and Occupational Pensions Authority(EIOPA’s) equivalence assessment of Bermuda’ssupervisory system (the EIOPA inspection report)was greeted with cautious optimism by commen-tators. The draft suggests Bermuda is equivalentwith caveats, many of which relate to areaswhere the Bermuda Monetary Authority (BMA)already has work in progress.

Market participants who wish to influence theequivalence debate should visit https://eiopa.europa.eu/consultations/consultation-papers/index.html during the consultation period. The consequences of equivalence are generallysignificant for large Bermuda-headquarteredinsurers or those headquartered outside theEuropean Economic Area with Bermuda-based operations providing reinsurance to EEA insurers.Treatment of CaptivesThe EIOPA inspection report draws an interestingdistinction between Class I, II and III insurersfrom Class IIIA, IIIB and IV insurers – possiblyreopening a discussion around whether Captives

may be carved out from equivalence.While many would welcome such a move,

some large captives may be disadvantaged with-out equivalence. Captives providing reinsuranceto affiliated commercial insurers or other captivesmay wish to lobby for an ability to ‘opt in’ in theevent they would not otherwise be consideredequivalent.Group supervisionThe EIOPA inspection report highlighted uncer-tainties in Bermuda’s progress on group supervi-sion. Many would say the BMA is leading thethinking on group supervision, albeit a work inprogress, having already engaged with compa-nies and other supervisors and provided draftindustry guidance.

Truly meaningful group supervision leads tosensible, coordinated and proportionate regula-tion rather than simply implementing an addition-al layer of scrutiny. Group supervision will bemost successful with the support and trust ofregulated entities and other supervisors. Toshape this, companies can exert influence overtheir group supervisor and, importantly, othersupervisors having a regulatory interest.Re-calibration of standard capitalrequirementsRecent economic turmoil highlights the impor-

tance of updating models to reflect the ever-changing world. Standard formulae used by reg-ulators to set regulatory capital for those compa-nies who have not obtained model approval willbe re-calibrated at various points in the future.

Many companies decided whether or not toseek model approval based on regulatory modelrequirements. Keeping in mind that these mod-els are not constant, companies should analysethe sensitivity of their capital requirements topotential changes in regulatory models as wellas to changes in the economic and competitivelandscape.Will model approval matter?Internal model approval is required for compa-nies operating at Lloyd’s and desirable for manywithin Europe. For many Bermuda companies,the Bermuda Solvency Capital Requirement isless than driven by rating agency requirements,leading to questionable value in model approval.

However, rating agencies reportedly antici-pate that Solvency II compliance will be neededto maintain favourable ratings or commentary onrisk management. Gaining model approval couldsignal an endorsement of the risk managementwithin an organisation. If this proves to be thecase, companies that are unprepared could findthemselves as outliers.

ANDREW SMITH, PWC DIRECTOR – INSURANCE ADVISORY, ASKS SHOULD WE RIDE IN THE BACKSEAT OR ALTER DIRECTION?

Asking the right questions about equivalence


QUOTE UNQUOTE

“It’s well-known, it’s well regulated, it has con-tinued to weather the storms that have batteredoffshore jurisdictions through the years.Bermuda provides a one-stop shop in as muchthat the underwriters, companies and serviceproviders are all here.”— Partner at Appleby, David Lines, speaking

at the 10th Insurance Linked Securities Summitat the Fairmont Southampton, about Bermuda

as an insurance market (The Royal Gazette)

“The banking sector failed and as a result ofwhat happened in the banking sector, they want

to impose upon theinsurance sector highercapital requirements.During that same, reallysingular crisis, the insur-ance industry performedquite well. I continue tobelieve that the bankswould do well to learnfrom us, instead of usfrom them.”

— XL Group CEO Mike McGavick onincreased capital requirements necessary for some

companies under Solvency II (The Royal Gazette)

“I see no current threat to Ber muda so great thatredomiciling makes sense and in the longer runI see no strategic advantage that accrues frombeing quick off the mark to make such a change.In fact, quite the converse. I think there is achance that companies that have alreadyredomiciled may ultimately wish they had notdone so.”— Endurance Specialty Holdings CEO David

Cash on the benefits of doing business inBermuda (The Royal Gazette)

[ 19 ]

Bermuda: a one-stop insurance shop

ONSHOREOctober 18Sedgwick’s Ninth Annual HotTopics SeminarBermuda UnderwaterExploration Institute

November 15Goldman Sachs AssetManagement’s 8th [email protected]

June 3–6Bermuda Captive Conference2012Fairmont Southamptonwww.bermudacaptive.bm

OFFSHOREOctober 16–19American Society for HealthcareRisk Management (ASHRM)Phoenix Convention Centre,Arizonawww.ashrm.org

October 23–26Property Casualty InsurersAssociation of AmericaNew Orleans, Louisianawww.pciaa.org

January 30–February 1World Captive ForumDoral Golf Resort, Miami,Floridawww.worldcaptiveforum.com

WHAT’S ON


XL GROUP has appointed PeterR Porrino as Executive VicePresident and Chief FinancialOfficer. Mr Porrino, who has morethan 30 years of experience work-ing in and advising the insuranceindustry, including considerableproperty and casualty insuranceand reinsurance experience, willreport to XL’s CEO, MikeMcGavick, and will serve on XL’sLeadership Team. XL Group hasalso announced the appointment

of Paolo Ribotta as Head ofGlobal Distribution.

ALTERRA CAPITAL HOLD-INGS LTD has announced thatJohn Berger, CEO of Rein -surance and a member of Alterra’sBoard of Directors, is leaving topursue a new opportunity. ThomasC ‘Tom’ Wafer, formerly thePresident of Alterra ReinsuranceUSA, has been app ointed to takeover from Mr Ber ger, who has

more than 30 years of reinsuranceindustry experience and has beenPresident of Alterra ReinsuranceUSA since November 2009. From2005 to 2009, he was ManagingDirector of Inter national Under -writing for Harbor Point Re Lim -ited and New Point Re Limited inBermuda. Bret Hilgart has beenappointed as Vice President,Underwriter of Alterra USA. Hehas more than 11 years of executiveliability experience, most recently

as a Vice President of IronPro, adivision of Ironshore, overseeingmanagement liability and relatedlines for its Central Region.

EVEREST RE GROUP LTDhas announced the promotion ofDominic Addesso to the role ofPresident. Mr Addesso joinedEverest two years ago as ExecutiveVice President and Chief Fin -ancial Officer. Joseph Taranto,Chairman and CEO of EverestRe, said: “It is rare to have an exec-utive with such a wealth of experi-ence on both the financial andoperational sides of our business.Dom is an outstanding leader withthe highest integrity. I look forwardto working with him as President.”John Doucette has also beenpromoted to Chief UnderwritingOfficer for Everest’s WorldwideReinsurance. Mr Doucette joinedEverest three years ago asExecutive Vice President.

ACE LTD has announced thatJohn Keogh, Vice Chairman,ACE Ltd, and Chairman, ACEOverseas General, has beenappointed to the additional posi-tion of Chief Operating Officer,ACE Ltd.

TOKIO MILLENNIUM RELTD has appointed StephenO’Flynn as Senior Vice President,Underwriting. Mr O’Flynn isresponsible for initiating the firm’sprofessional lines portfolio of busi-ness. He joins Tokio from AlliedWorld Reinsurance Company.

FLAGSTONE REINSURANCEHOLDINGS has announced thatGary Prestia has been appointedCEO of Flagstone Representatives(US) Inc and Chairman of MosaicNY. Guy Swayne has beennamed Executive Vice President ofFlagstone Réassurance Suisse SA,with executive responsibility forunderwriting in Bermuda as wellas oversight of all internationalunderwriting centres, includingLloyd’s where he currently servesas Chairman of FlagstoneSyndicate Management Limited.

PEOPLE

Porrino is XL Group’s new CFO

OIL CASUALTY INSURANCE, LTD.

[ 20 ]


WASHINGTON HOUSEA NEW DEVELOPMENT, IN THE

CENTRE OF HAMILTON

Recently completed and offering 62,000square feet of office space on four floorsand 24,000 square feet of retail space ontwo levels. The new building, which is partof the Washington Mall complex, spansthree city lots allowing up to 15,500 squarefeet of net rentable space on each officelevel, and the flexibility to suit a singletenant or multiple tenants.

Washington Mall is a large complex ofoffices and retail outlets on Reid Streetand Church Street. The officesaccommodate local and internationalbusinesses, while the retail outlets offera variety of products and services ofinterest to both local residents and visitors.

For more information call(+1 441) 295-4186

or e-mail: [email protected]


In the world of risk management, it takes clear vision to build effective solutions to complex challenges. Alterra is a market-leading, global enterprise ready to offer you a wide range of reliable specialty insurance and reinsurance products. Superior financial strength. Excellent ratings. Disciplined underwriting. It’s clear to us. Let’s make it clear for you. // www.alterracap.com

Specialty Insurance & Reinsurance Ratings: A.M. Best: A / S&P: A- / Fitch: A / Moody’s: A3

Better talent. Better results.

Up here, Challenges are Crystal Clear

alterra_challenges_bermuda_BIQ.indd 1 9/9/11 9:08 AM

In the world of risk management, it takes clear vision to build effective solutions to complex challenges. Alterra is a market-leading, global enterprise ready to offer you a wide range of reliable specialty insurance and reinsurance products. Superior financial strength. Excellent ratings. Disciplined underwriting. It’s clear to us. Let’s make it clear for you. // www.alterracap.com

Specialty Insurance & Reinsurance Ratings: A.M. Best: A / S&P: A- / Fitch: A / Moody’s: A3

Better talent. Better results.

Up here, Challenges are Crystal Clear

alterra_challenges_bermuda_BIQ.indd 1 9/9/11 9:08 AM

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