Jack Roberts

In July, Risk & Insurance brought together a group of key players in the Bermuda reinsurance market to assess the state of the industry. They included W. David Brining, executive vice president of Max Re; James P. Bryce, president and CEO of IPC Re; Dwight R. Evans, president of Arch Reinsurance; David M. Furby, president of ACE Global Reinsurance; Kenneth J. LeStrange, CEO of Endurance Specialty Insurance and Michael Morrison, CEO of Allied World Assurance Co. Ltd The discussion, published in two parts, was moderated by Risk & Insurance Editor Jack Roberts and Bermuda correspondent Roger Crombie. The first part appeared in the Sept. 1 issue of the magazine. The last part appears below.

What's your outlook on Bermuda, as heads of reinsurers based there, and what do you see as the risks that you face operating in this market?

Morrison: Whichever government has been in power, none has ever done anything intentionally to harm international business. Nor do they desire to do that. They try to do that delicate balance of trying to manage the politics of Bermuda and the population's desires along with the obviously very real benefits of having international business. 1 guess the biggest issue on everyone's minds is the issue of the work permits and how that's going to be handled, and the issue of the "key executives." How that all comes into play could be, for instance, an issue because there are only about eight or nine Bermudian actuaries in the world.

Bryce: I was five years in Japan, two-and-a-half years in Hong Kong. This is the most business-friendly environment in terns of government of all the jurisdictions, including the United States. Our single largest shareholder, AIG, has been here for more than half a century. Its operations here started in 1947. It was the first exempt company to set up here and it is a testament to how well business and government work here.

LeStrange: We're the newcomer. We've been here for a year-and-a-half and we selected this jurisdiction out of many possibilities. We feel now, with the benefit of hindsight, that we made a great decision to place our headquarters here. I've had some interaction with people in government. What I hear from them is that there are a few issues--and none of them are insolvable-that are governing some of the behavior we have experienced recently. Furby: I'd echo the sentiments that have been expressed. I'm very new to the island having only been here for 10 months.... I think there is a receptive mind-set out there for a true relationship between business and government with the recognition of the need to build the staff and skills required to manage successful businesses.

Morrison: We've got a lot of very bright young people within our company. We've promoted some from underwriting assistant to junior underwriter and right on up. But if we're talking about "the key player," I am not sure there is going to be enough Bermudians ready by 2007 to be ready to take over that senior level among all companies that are here. There may be one or two who are going to be in high positions ... I think 2007 is too short a time frame.

LeStrange: One of the things that is happening that might accelerate the development of people in contrast to previous environments is just the influx of visitors, customers and brokers. ... What we've experienced, and all of us are, is an incredible volume of people coming through. All types of customers at all levels. I think Bermudians who work here now are exposed to that, where perhaps 10 years ago they weren't. That's, I think, a big change.

Furby: There is a tremendous diversity of business activity nowadays, across classes of business, and of the people who come to the island. Bryce: I think what the government really has to look at is to be forward-looking.... I think someone is going to have to give some thought to really coming up with a full-time training and educational facility to bring these people along ... I think the burden can't fall all on the companies for training them. You have to have some formal education and the Bermuda Insurance Institute is a tremendous organization, but going forward something has to be developed to meet the needs. I don't think the B II with its limited resources, can really meet the growing needs of the industry.

Evans: My experience coming onto the island new is that it has been a great regulatory environment. The new companies just as much as the older companies here are very much aware of the needs of a small island and the strain that the companies are putting on the island. I think that certainly we feel it is very important for us to give back to the island in a way that helps from an educational standpoint and a quality-of-life standpoint. Certainly the people we hire, and we're hiring more and more Bermudians every day, are very important to our future.

Brining: Even if you could staff 1,000 or 1,500 jobs, what makes anyone here think that there are 1,000 kids today that want to go into insurance or reinsurance? We just did a sponsorship of the international company education awards and a guy wants to be a biology and environmental major and do things about pollution. That's fantastic and as a Bermudian he should. You can't politically force the students of today and tell them that "you will all be going into insurance and reinsurance." There is no town in the United States that has the leaders of $20 billion of capital of companies all just packed into the same town.... My kids have just finished up some years at the school. They have a business course and they talk about this industry. And they hear about us, and they see us coach their sports. But they are not all sitting there saying, "Gee I want to be an actuary or I really want to be an underwriter." They want to be a fireman or a sports personality.

Bryce: There are really four waves of companies here, and we're part of wave three. We've got a limited staff. We've got a great infrastructure with AIG behind us. When people ask me how many people we have I say it's between 15-and-a-quarter and 150 people. And they say, how do you work those numbers? I say we have 15 full-time staff dedicated to underwriting and management. We've got a marketing man who gives us three months out of the year; that's the quarter. And we've got an infrastructure with a service contract with AIG with access to literally over 100 people.... If we had to move our company, we could probably get the computer records and the files, put them in a plane and we could jet virtually anywhere in the world within a matter of days. That's the harsh reality, at least in terns of our company.

Morrison: I think the government recognizes that. They have to be flexible, whichever political party is in power. One of the threats that I presume they're aware of is that the day that Castro dies, Cuba is going to open up to the United States. There are already companies from other countries putting in the infrastructure. Once he dies and that whole Communist group gets out of power, there you have a huge island with plenty of space and a very well educated group of people.

Evans: To me, it seems like the way of operating in Bermuda is that companies are formed they are centralized in their structure and they staff up in the short tern. As they mature, they decentralize their operations with offices in London or the United States or Dublin and their staffs are then reduced slightly. They keep a smaller core in the corporate headquarters here, but in a decentralized way they are spreading around the world.

Morrison: That raises a whole other question. People say, "What keeps you awake at night?" One of the things is how do we make sure that Bermuda, the market, maintains its place in what is apparently the second-largest market in the world. When there is more capacity available in other countries, how do we make sure that the brokers and the clients still value us to such an extent that they continue to come here and place business with us?

Brining: When you look back historically at ACE and XL, when they started up, they were very tightly controlled, strictly on the island. Both of those companies are now operating worldwide through acquisition or opening offices around the world. They are spreading their reach.

Furby: There have been local acquisitions within the island. A lot of the core lines of business that were developed when ACE was less diversified though various acquisitions still remain here on the island. A lot of the additional growth has been as a result of the further development of the international infrastructure that ACE has built. There are certain lines of business that you choose and that fit very well with the Bermuda operating environment.

LeStrange: There are two things I'd like to connect to Bermuda and its ability to continue to be a world center for insurance and reinsurance. One of the ingredients that creates a company is capital. A lot of capital moved into Bermuda in the last few years. Capital is attracted by business plans and management teams ... I think there is a distinctly American flavor to most of the management teams.

Morrison: It the clients that principally come here can do their business in the. States or in Luxembourg or in London or Dublin or wherever it might be, they may not find it so necessary to come here.

Bryce. This is just a very pleasant place to work. I think our clients all come here for two reasons: No. 1: they want to discuss business face-to-face. The reality as we saw it post-Sept. 11th, is that you can do all of that by teleconferencing. A lot of people post-Sept. 11th did not want to fly. We had a lot of teleconferencing in outbuilding. It was very effective. It wasn't quite the same as face-to-face. But I think people come here to discuss business and because they actually enjoy themselves here. There's a round of golf, you go out sailing, you go out on a boat. It's just a nice place to visit.

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