The Intelligent Quarterly from the publishers of The Insurance Insider

Winter 2017 / 2018

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Bermuda Roundtable Autumn 2017

Bermuda is blessed with some of the best restaurants I've ever had the pleasure to attend, and seafood features heavily - unsurprisingly, given the vast expanse of the North Atlantic surrounding Bermuda's beautiful beaches.

I'm told if you venture out to Bermuda's coral reefs you can truly get an idea of the entire food chain, from the bioluminescent fireworms to the rockfish and spiny lobsters.

Another sort of food chain was the topic of our annual roundtable, however - that of the (re)insurance market. All eyes in Bermuda were on the retro market to see how badly, if at all, third quarter hurricanes, quakes and wildfires might hurt the island's fortunes.

For the most part, our participants were bullish. Not only are they of a sunnier disposition in this part of the world, but Bermuda also benefits from a strong capital base and a lesser focus on some of the most affected lines, such as property D&F.

Similarly, much of the Caribbean market is either written in North America or picked up by the London binders market.

However, as our readers will know, it's not that simple. If the cost of industry loss warranties goes up for retro writers, they'll have to increase their prices. And if retro providers do turn out to have combined ratios of more than 400 percent - as was suggested during this roundtable - that will have to be passed on to their reinsurance clients in the form of double-digit rate increases.

Will the primary markets and the end customer suffer as a result? Or will we see retentions increase instead?

There are also question marks around how the insurance-linked securities (ILS) markets will respond. How much collateral will be trapped as a result of the recent nat cat losses? And is there really a wall of capital ready to come in and reload?

As one participant pointed out, it's likely that some investors will have come in for the early retro placements, ahead of the trio of hurricanes, and missed out on any potential rate rises, which could dampen their appetite for buying into any more.

Another factor which could temper investors' enthusiasm is that some standalone ILS funds don't add any of their own intellect to the models handed over by third party vendors. If those modellers have missed the mark, and the investors have ended up with bigger losses than they were anticipating, will they be willing to come back in?

This could actually be a turning point for ILS investors. In the same way that hedge funds suddenly demanded greater transparency and proper due diligence after being stung in 2008, could we see the same thing happen for ILS?

And what could that mean for the fees attached to such structures, given the shock of 2008 led to high watermarks being introduced and the death of 2 and 20?

Plenty of food for thought!

To view the Autumn 2017 Bermuda roundtable please click here.

Charlie Thomas

Managing Editor

The Insurance Insider

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