Better to work in an industry which attracts capital, than one that doesn t! Mike McGavick, XL Group, CEO RAA Cat Modeling Bradley Kading Feb. 2015
Mark Twain You can go to Heaven if you want to, I d druther stay here (Bermuda). Mark Twain, 1909
Bermuda s American Partnership 400 years and counting Rescue of the Jamestown Colony Supplied resources when the colony was starving to death Bermuda was part of the Virginia colony for a time Gunpowder to save George Washington s army: Saved the revolution by getting supplies to Washington; ironically taken from the British World Wars 1 & 2, Gibraltar of the Atlantic Cold War, US subs tracking Soviet fleet
Summary Bermuda (re)insurers: --who we are and what we are about Our economic contribution Document impact of new capital Focus on risk management opportunity Focus on public policy opportunity
Share of Losses Paid by Reinsurers, by Disaster* 70% 60% 60 50% 40% 30% 20% 30 25 20 45 40 10% 0% Hurricane Hugo 1989 Hurricane Andrew 1992 Sept. 11 Terror Attack 2001 Hurricane Losses 2004 Hurricane Losses 2005 Hurricane Ike 2008 * Excludes losses paid by the Florida Hurricane Catastrophe Fund, a FL-only windstorm reinsurer, which was established in 1994 after Hurricane Andrew. FHCF payments to insurers are estimated at $3.85 billion for 2004 and $4.5 billion for 2005. Ike share is an estimate as of 2/9/09. Sources: Wharton Risk Center, Disaster Insurance Project; Insurance Information Institute.
Regional Distribution of 05 Hurricane Payments: Wilma, Rita, and Katrina Source: J. David Cummins, The Bermuda Insurance Market: An Economic Analysis, May 6, 2008
U.S. 9/11 Losses as Reported by Reinsurer Headquarters International insurers and reinsurers paid 64% of U.S. 9/11 claims. Dowling & Partners WTC Losses By Co. Headquarters $,MM U.S. Reinsurers $4,109 U.S. Primary $5,659 Europe Reinsurers $5,506 Europe Primary $3,865 Bermuda $2,479 Lloyd s $2,844 Japan $2,338 Total Announced $26,799 Lloyd's 11% Bermuda 9% Europe Primary 14% Japan 9% U.S. Reinsurers 15% Europe Reinsurers 21% U.S. Primary 21%
Hurricane Sandy Where the Money Comes From ($ Millions) Source: Insurance Insider. January 2013, updated 4/29/13.
Bermuda s $35b U.S. Contribution From 2001 to 2012, Bermuda s (re)insurers estimated contribution to U.S. catastrophe losses: Disaster 2001, Terrorism 9/11 $ 2.5 B 2004, Florida Hurricane Quartet $ 3.5 B 2005, Katrina, Rita and Wilma $18.0 B 2008, Hurricanes Ike, Gustav $ 4.0 B 2010, BP Deepwater Horizon $ 1.0 B 2011, 2012, US Tornadoes + Irene $ 3.0 B 2012, Hurricane Sandy $ 3.0 B Estimated Contribution Source: Cummins IDC Study, Dowling, Insurance Insider, Trade Press
Reinsurance Capital at Record Levels Reinsurance capacity available to take on natural catastrophe risk is at record levels (2014) Supply Exceeds Demand! Aon Benfield calculates reinsurance capital at $575 billion. Aon Benfield calculates global insurance capital at $4.2 trillion. Property catastrophe reinsurance is a subset of this reinsurance market. Guy Carpenter estimates globally $341 catastrophe limit purchased in 2014 Aon Benfield Reinsurance Market Jan. 2015; Guy Carpenter Jan. 2015
Sources of Alternative Capital Hedge Funds Pension Funds Sources Sovereign Wealth Family Funds Other Source: Goldman Sachs, RAA presentation, May 2013
Capital Markets and Reinsurance Markets Converge: What Does it Mean? ECON 101: Supply outstrips demand, prices fall Florida cat reinsurance capacity up 20% in 2013/14 ($9.2B to $11 B) $3.3B unused capacity in Florida in 2014 Florida catastrophe reinsurance prices at June 1? Florida catastrophe reinsurance prices down an average of 15% in 2013 and again in 2014 Sources: Guy Carpenter Florida Summit, Jan. 14 2015; Trade Press Reports
Capital Markets: Who Are They? Guy Carpenter: In general terms, it is safe to say that capacity from alternative markets has never been more competitive and in some cases it is clearly priced below the traditional market. Source: GC FL Summit Jan. 14, 2015
Growth of ART Cat Capacity by Instrument Source: Aon Benfield Reinsurance Market Jan. 2015
Guy Carpenter $60B Capital Breakdown Source: GC FL Summit Jan. 14, 2015
More Capacity is Available! Use it! Based on current excess supply: Reinsurers have been reducing prices Increasing dividends to shareholders Buying back stock Why not put capital to work taking on more risk?
How Do We Make This Change?
Benefits of Global Catastrophe Pooling Increased capacity for insurers: Reinsurers can offer more coverage per client Reduced credit risk for cedents: Fewer eggs in more baskets Diversification of reinsurers risk: Uncorrelated risk by peril, geography and time Capital supports more capacity at lower prices External capital contribution to devastated local economy
FEMA s Craig Fugate $24 B US NFIP debt Use risk based pricing to encourage risk mitigation Fix the NFIP, privatize some flood coverage Change incentives in federal disaster aid Encourage insurance of public buildings/infrastructure Increase the pain point so that consumers know to rebuild schools with tornado shelters or relocate sewage treatment plants Source: PCI FL Insurance Summit Jan. 2015
FL Citizens Success Story Florida Citizens shed 56% of policies 2011-14 1.5 M down to 661K: Maybe can drop to 500K 59% of private offers accepted 60% reduction in exposure Coastal account down 40% Benefits to taxpayers: Assessment potential down from $11.6B to $1B Can get to ZERO for 2015 with more reinsurance purchases
Developed World Shrink all government insurance programs Move risk from property residual markets Increase EQ take up rate Mortgage default risk TRIA amendments Reinsure US and UK flood programs: US NFIP $7 B now growing to up to $15 B UK Flood Re $1.2 B now growing up to $3.7 B
Two Islands, Worlds Apart New Zealand v. Haiti, Earthquake disasters New Zealand: $6.5 B direct loss Haiti: $8 B direct loss Insured: New Zealand-- 81% Haiti -- 1% Per IAIS and BIS: Insurance and reinsurance protection promotes speedier economic recovery
Developing World Infrastructure China: Insure those skyscrapers India: Increase foreign FDI Increase insurance penetration: Crop insurance Natural disaster
Develop New Products
What Could Change this Dynamic? Are capital providers weak-kneed after loss? Tested over 20 years, committed for the long haul Paradigm shifting events: Unexpected events can change the equation; but trend is to more capital/capacity Increase in interest rates/recovery to the norm: Impact if market rates move up to 5%? Obama reinsurance tax: Oppose the affiliate reinsurance tax, reduces reinsurance supply by 20%
Growing Protectionism Legacy of the financial crisis, policy makers want capital close to home Global Reinsurance Forum has identified 24 jurisdictions with impediments to cross border reinsurance trade: Attacks the fundamental nature of the reinsurance business because it blocks the ability to pool risk and diversify exposure on large loss events.
The New Bermuda Triangle Think of us this way --- Bermuda s global insurance leadership BIOS research climate change, Humpback whale reserve, Sargasso Sea conservation, Cahow conservation Invasive species control Environment and Ocean Science (Re)insurance and Captives Bermuda s Triangle: Getting the message right Transparency and International Cooperation Bermuda s leadership with IAIS MMOU, OECD Global Forum, TIEA s with trading partners
About ABIR 21 Companies Highly capitalized, distinct regulation $66.4 billion gross written premiums, $95.2 billion surplus Worldwide business enterprises Principal underwriting operations in Bermuda, Europe and the United States 2012 YE Data
ABIR Members Capital and Surplus
ABIR Members ACE Allied World Arch Argo Group Aspen Assured Guaranty Axis Catlin Endurance Hamilton Re Hiscox Lancashire Montpelier Re Partner Re Platinum Re Renaissance Re Third Point Re Tokio Millennium Re Torus Validus Re XL Group plc
ABIR Contacts Bradley Kading, President and Executive Director Bradley.Kading@ABIR.bm Leila Madeiros, Senior Vice President, Deputy Director and Corporate Secretary Leila.Madeiros@ABIR.bm www.abir.bm www.reinsurancebermuda.com
Bradley Kading Association of Bermuda Insurers and Reinsurers