Development of the Bermuda Reinsurance Market - PASA General Assembly, Antigua, Guatemala
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Development of the Bermuda Reinsurance Market PASA General Assembly, Antigua, Guatemala Karl Mayr President & CEO of AXIS Re Europe April 30, 2012
Safe Harbor Disclosure
Statements in this presentation that are not historical facts, including statements regarding our estimates, beliefs, expectations,
intentions, strategies or projections, may be “forward-looking statements” within the meaning of the U.S. federal securities laws,
including the Private Securities Litigation Reform Act of 1995. We intend these forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements in the United States securities laws. In some cases, these statements can
be identified by the use of forward-looking words such as “may,” “should,” “could,” “anticipate,” “estimate,” “expect,” “plan,”
“believe,” “predict,” “potential,” “intend” or similar expressions. Our expectations are not guarantees and are based on currently
available competitive, financial and economic data along with our operating plans. Forward-looking statements contained in this
presentation may include, but are not limited to, information regarding our estimates of losses related to catastrophes and other
large losses, measurements of potential losses in the fair value of our investment portfolio, our expectations regarding pricing
and other market conditions and valuations of the potential impact of movements in interest rates, equity prices, credit spreads
and foreign currency rates.
Forward-looking statements only reflect our expectations and are not guarantees of performance. Accordingly, there are or will
be important factors that could cause actual results to differ materially from those indicated in such statements. We believe that
these factors include, but are not limited to, the following:
• The occurrence and magnitude of natural and man-made disasters,
• Actual claims exceeding our loss reserves,
• General economic, capital and credit market conditions,
• The failure of any of the loss limitation methods we employ,
• The effects of emerging claims, coverage and regulatory issues,
• The failure of our cedants to adequately evaluate risks,
• Inability to obtain additional capital on favorable terms, or at all,
• The loss of one or more key executives,
• A decline in our ratings with rating agencies,
• Loss of business provided to us by our major brokers,
• Changes in accounting policies or practices,
• The use of industry catastrophe models and changes to these models,
• Changes in governmental regulations,
• Increased competition,
• Changes in the political environment of certain countries in which we operate or underwrite business, and
• Fluctuations in interest rates, credit spreads, equity prices and/or currency values.
This report is for informational purposes only. It should be read in conjunction with the documents that we file with the
Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.
2
Agenda
Historical Development
The Bermudian Reinsurance Market today
The Bermudian Business Model
Solvency II and Equivalency in Bermuda
Bermudian Players in Credit and Bond
Market Observations
3History of the Bermuda (Re)insurance Market
• 7 companies formed following September 11
• ACE and XL established to focusing on a broad mix of business
• Initial domicile of AIG address US commercial
(chosen by C.V. Starr) liability crisis • Total capital raised $15 Bn
1940’s 1960’s 1980’s 1992 2001 2005
• 8 companies formed following
Hurricane Andrew with > $500M of • 11 new companies formed
capital to address void in the following Hurricanes Katrina,
property cat reinsurance sector Rita and Wilma
• Captive insurance companies
formed (captive domicile of choice
• Total capital raised $14 Bn • Total capital raised $32 Bn
by the 1980s)
Bermuda has evolved as a world leader in taking on
all types of insurable risks
Source: Bank of America Merrill Lynch 2012 Property/Casualty Insurance Primer
4Developments since 2005
Parallel companies
Sidecars
No more new ‘Class’
Re-Domestication
Collateralized reinsurance offerings
5Bermuda Overview
Association of Bermuda Insurers and Reinsurers (ABIR)
22 companies deriving business income from over 100 countries
around the world
Highly capitalized with $90 Bn in total capital and surplus
$62 Bn in total gross written premiums
Market has grown in the last 25 years in response to market
demand
ABIR members are represented by 32’000 employees worldwide,
out of which 15’000 in the US and 1’700 in Bermuda
Source: Association of Bermuda Insurers and Reinsurers
Note: Data for calendar year 2010
6Significant Reinsurance Market
2010 Reinsurance NPW by Country – Top 40 Reinsurers Worldwide
UK France Japan
6,7% 6,2% 4,4%
Switzerland All Other
13,1% 6,3%
Germany
28,4%
Bermuda
15,8%
US
19,1%
Source: 2011 Standard & Poor’s Global Reinsurance Highlights
7Significant Product Diversity
Bermuda Gross Premiums Written by Line
Catastrophe
Property
Prof. Liability
Other
Marine & Aviation
Casualty
A&H
Source: Bermudian Business/Deloitte; Bermuda Insurance Survey April/May 2011
8Bermuda Reinsurers Cover the Globe
Principal underwriting operations in Bermuda, United States and
Europe
Share of Bermuda Re(insurers) of major catastrophe losses in 2010
and 2011:
29% of the international reinsured share for Japanese earthquake
25% of Gulf of Mexico oil spill
37% of Europe’s Windstorm Xynthia
51% of New Zealand’s earthquakes
38% of Chile’s earthquake
Geographic Diversification at Work
Source: Association of Bermuda Insurers and Reinsurers, March 2012
9Top 10 Bermuda (Re)insurers by Total Capital
As of December 31, 2011
($ in millions)
$29,436
$30,000
$25,000
$20,000
$15,000 $13,045
$10,000 $7,289 $6,889
$6,439
$5,028 $4,620
$3,985 $3,947 $3,671
$5,000
$-
Note: Financial data as of December 31, 2011
10Bermuda 10-Year Average ROACE
Publicly Traded Bermuda (Re)insurers (2002-2011)
25.0%
20.1%
20.0%
16.0%
14.2%
15.0% 12.9%
12.2%12.1%11.8% Mean = 10.7%
9.4% 9.2% 9.2% 9.2%
10.0%
7.1% 6.8%
5.0%
0.1%
0.0%
ROACE = Return on Average Common Equity
Source: Company reports, SNL
Note: Excludes “Class of 2005” companies
11Key considerations when establishing a Bermuda
based company
Bermuda proximity to US
Speed to market in Bermuda
Market acceptance
Business friendly environment
Bermuda Cat Market / London play
Physical locations to execute business plans in US, UK &
Europe
Attracting talent challenging
12The Bermudian Business Model
Entrepreneurial Spirit
Clear Strategy
Analytical, Technical, Disciplined Underwriting
Willingness to take measurable risk
Capacity
Lean Structure
Speed...Speed...Speed
Entrepreneurial, Technical, Bottom Line Focused
13Solvency II and Equivalency in Bermuda
EIOPA (European Insurance and Occupational Pension
Authority) assessed Bermuda for equivalency in 2011
Bermuda is partly equivalent to Solvency II based on a
preliminary assessment
Final assessment once Solvency II implementation
measures have been agreed upon (not expected before end
2013)
Solvency II has become a key component for the business
location in Bermuda
14Product Diversification into Credit & Bond
Reinsurers often seek to enter lines of business which are lowly
correlated, allowing Product Diversification (e.g. Credit & Bond,
Engineering, Agricultural, Aviation, Energy)
More than ten Bermudian companies with an estimated market
share of 20 to 25% write Credit and Bond
Bermudians with a dedicated Credit and Bond team:
– XL Re
– Partner Re
– Everest Re
– AXIS
– Arch (Ariel)
– Aspen
– Endurance
– Alterra
Some others are selectively offering Credit & Bond capacity
15Bermudians in Credit and Bond Reinsurance
Main ingredients for success:
Infrastructure and Capital
Understanding the products and the exposure
Talent
Senior Management involvement
Experience over cycles
Confidence in the business models of cedents
Commitment to Credit and Bond
Continuity, partnership and predictability
16Product and Geographical Diversification
Surety is rather local business compared to Credit; hence,
geographic expansion adds to diversification
LA Surety:
– Relatively new market
– Historically good results despite several crisis
– Growth potential
Surety cycle is different to the Credit cycle
Diversification with P&C but also within Credit and Bond over
various regions
17Zurich as Credit & Bond Reinsurance hub
Stable political environment
Well-established regulatory environment
Strategically located in the middle of Europe
Excellent infrastructure
Embracing an international mind-set
Availability of reinsurance talent
Ability to attract new talent and smooth integration of expatriates
18Market Observations
Bermudian (and other) entrants adding to the capacity supply
Increased competition on the Reinsurance side
(Over-)capacity provided by reinsurers fueling competition on
the primary side
As a result, we observe price and condition competition in
insurance
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