Matt Damsker
The winds were February fierce while the sun played its usual peekaboo with the clouds as the highly anticipated Bermuda Insurance Symposium V--which doubles as the BIS and also as the World Insurance Forum--got under way last month at the island's grand hotel, the Southampton Princess.
The mood was uncertain, amid the sudden market withdrawal and runoff plans of one of Bermuda's leading reinsurers, Overseas Partners Ltd., which cited a shareholder liquidity problem despite its $1.3 billion capitalization. But the emergence of more than a dozen highly capitalized new insurance and reinsurance players on the island since September 11 has affirmed that Bermuda is, once again, very much a hot topic.
Indeed, the hotel's ongoing refurbishing had kept the biannual event from taking place at its scheduled time last year, so this year's delayed version had to cope not only with the traumas wrought by and since 9/11, but with the struggle to reestablish itself as a regular, not-to-be-missed forum. On that count, it seemed to be doing well, as a who's-who of insurance executives from Bermuda and beyond made a point of being there.
Conspicuously absent, though, was the much-touted keynote speaker, AIG chairman Maurice "Hank" Greenberg, the industry titan on whose words the insurance world often hangs. Greenberg had to bow out at the last minute due to the flu, so AIG senior vice chairman Thomas Tizzio did the keynote honors. Meanwhile, Greenberg's two prominent sons, Marsh & McLennan Cos. Inc. CEO Jeffrey Greenberg, and Ace Tempest Reinsurance CEO Evan Greenberg, were as visible as their father was absent, allaying concerns somewhat about his health.
As for Tizzio, he brought his usual brusque and businesslike manner to the difficult task of briefly filling Hank Greenberg's shoes and of providing a market overview. He noted that the terrorist attack of 9/11 only accelerated the rate at which the property and casualty market had been changing, and he cited the surge in jury verdicts and settlement costs across all excess casualty lines from the 1990s onward.
New challenges such as post-9/11 workers' comp risk, toxic mold, and the aggregation of exposures were forcing insurers to "get back to basics in the excess area," said Tizzio, "and focus on core strengths, and on the reinforcement of underwriters' relationship to accounts." The call for more disciplined underwriting has become a standard theme at conferences, but Tizzio brought urgency to it when he noted a 200 percent increase in D&O (director' and officers') liability settlements and 300 percent increases in security class actions in recent years, and mentioned the Enron debacle as raising "half a dozen question marks."
"The light at the end of the tunnel for D&O," said Tizzio, "is the drive toward coinsurance. Recent events in corporate America have put corporate governance at the center of the storm. The government and the country want to know what went wrong (at Enron and Kmart). The focus is going to be on corporate executives, and at the end of the day, on who's going to pay could make this one of the most catastrophic years for the D&O sectors.
"For insurers, it's a wake-up call to put itself back on the path to profit, with sound underwriting. Premiums must be commensurate with risks."
Acknowledging the rise in pricing, the flight to quality in the reinsurance markets, and the failure of the U.S. Congress to pass a federal terrorism backstop, Tizzio was circumspect. "If 2001 was the end of the soft market, there's still a long way to go," he said. "Rates had been down 70 percent to 75 percent, while policies had broadened and exposures increased. At AIG, we declined to write about $4 billion in business that was not profitable."
The conference's first-day centerpiece was a roundtable of industry star power. Moderated by XL Capital director Michael Butt, it featured Ace Ltd. CEO Brian Duperreault; SCOR CEO Jacques Blondeau; Arch Reinsurance CEO Paul Ingrey; Lloyd's CEO Nick Prettejohn; General Re Corp. CEO Joseph Brandon; CNA CEO Bernard Hengesbaugh; Marsh CEO Jeffrey Greenberg; Morgan Stanley insurance analyst Alice Schroeder; and Renaissance Re CEO James Stanard.
With that much firepower on the podium, the issues fairly glowed. On the question of what is uninsurable these days, there was little disagreement that terrorism headed that list. But Arch's Ingrey, representing one of the island's post-9/l1 newcomer entities, noted that as time goes on without another mega-terror attack, "fear tends to diminish. I recall that in 1968, (race riots) were uninsurable, and the government stepped in to provide stop-loss for a price, 2 percent. Two years later, companies said we're paying too much. If you could shift terror cover for 4 percent or 5 percent to the government, within a short period of time, it may be that we'll be saying it's a product we don't need anymore." Ingrey met with near-total disagreement on that point. Other voices:
Blondeau: "We've got to make a distinction between 'normal' terrorism and what we experienced on 9/11. That is absolutely uninsurable, even if nothing happens six to 12 months from now, we would be kidding ourselves."
Hengesbaugh: "The nature of that exposure cries for comprehensive solutions. The next step is horizontal exposure, a terror event that affects a large area and population. Today's piecemeal solutions won't sustain us for that broad, long-lasting exposure."
Greenberg: "If we have a horizontal event, the government will have to come in. Wouldn't we be better off to have a mechanism in place rather than after the fact?"
Brandon: "One of the most disappointing things is that Congress has abdicated its responsibility to society. To deal with it on a post-event basis puts responsibility on the insurers, and I can't see the government handing owners their equity funds back."
Duperreault: "When we were at the White House (after 9/11, representing the insurance industry), there were Socratic arguments with administration aides. They asked us, What do we need you for? You can't price the risk. Well, we can't price it but we can distribute it. There is a role for the industry."
Other issues were batted about, including the thorny tension between the industry's risk-taking role and the desire of capital markets to see what Lloyd's Prettejohn called "metronomic returns" and earnings. And there was universal agreement that the cyclical nature of the industry remained its most salient feature-along with the need for an underwriting discipline that has always been hard to assure when the capital floods in, but which today's CEOs seem determined to enforce. All in all, the dialogue was welcome. And welcome back to the BIS.
WE'LL HAVE MORE FROM BERMUDA AND THE BIS IN THE APRIL ISSUE OF RISK & INSURANCE
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