Chris Sposato comments on Issues related to International Insurance and Reinsurance . . .
Connecting Again – Awakening after the Economic and Catastrophic Storms
Hamilton, Bermuda – 12 January 2012
It has been quite a while since I last blogged, or indeed felt like blogging. The world, our industry, and businesses everywhere were decimated by the worldwide credit crisis of 2008 and its wave of repercussions. We now know the systemic problems that gave rise to the circumstances and the greed and economic manipulations that were put into play that caused the economic mayhem.
Our company lost numerous ongoing projects and opportunities and were left holding the bag for our time, intellectual property, costs and expenses. However, this is different than losing one’s homestead
and lifetime savings . . . Unfortunately, there were no new projects or opportunities coming forward for what seemed like eons.
So, perhaps, for a while I was the Rip Van Winkle of bloggers – asleep and neither motivated nor inspired to write.
This past year, our industry experienced what looks as if it will be the year with the greatest catastrophic losses in recorded history – the world “blew up” in many fashions: tsunamis, floods, earthquakes, hurricanes, storms, etc. and in many parts of the world not usually understood to suffer such severe damage and destruction.
Today, I believe that the bleakness is dissipating, economically speaking, and from the perspective of our industry
that may be recognizing expansion and growth opportunities; the industry is starting to regain the interest of “money” seeking to invest opportunistically in risk, albeit cautiously and tentatively.
Bermuda has officially announced, through the Bermuda Registrar of Companies and the Bermuda Monetary Authority (the “BMA”), its industry regulator, that this past year saw the number of new insurance and reinsurance company formations grow significantly compared to the prior year (2010) when it was insignificant. See the article in The Royal Gazette: http://www.royalgazette.com/article/20120110/BUSINESS04/701109956/-1
Yes, this is getting better, but let’s look at some of the statistics. Of 54 new “registrations” (or company formations), twenty three were special purpose insurers created to issue insurance linked securities, including cat bonds and ILWs, or to be sidecars. This helps affirm Bermuda’s status as the “go to” jurisdiction for deployment of investment capital into the insurance and reinsurance industry; but none of which adds significantly to the employment of personnel in Bermuda and its attendant spending into the local economy.
With respect to the new special purpose insurers and sidecar structures, I wonder how the investors monitor the selection and risk management diversification of the business put into the vehicle? While many solely depend on the “host” company by taking a quota share of its business, as the use of sidecars increases, I can foresee an evolving structure where more sophisticated investors appoint their own risk “independent” underwriting officer to oversee or supervise the risk selection and diversification of business placed by the “host” into the sidecar vehicle. This may create a new opportunity for retired, talented underwriters, much like the world of “independent directors” on corporate boards.
In December, two class four companies were formed, SAC Re Ltd., established by Steven Cohen, founder and chief executive officer of SAC Capital Advisors LP, to be led by Simon Burton, formerly deputy chief executive of Lancashire Holdings and the Chief Underwriting Officer of its Bermudian underwriting subsidiary; and Third Point Reinsurance Company Ltd., established by Daniel Loeb, the founder of Third Point LLC, which will be headed by John Berger as its Chairman and CEO. John Berger was formally CEO of Alterra Capital, the company resulting from the 2010 merger of Chubb Insurance Company’s Harbor Point Re and the Max Capital Group. These two companies are both likely to contribute to some level of “on Island” employment and expenditure into the Bermuda economy; this will be good for the Island, and its residents; and it will hopefully help to reverse the past years’ trend of corporate job losses, local unemployment, and a shrinking Island economy. Word on the street is that there may be a few new additions looming on the horizon for this year. This in encouraging for us all in the industry.
Best wishes to everyone for a better year in 2012. May you all have a Very Happy, Healthy and Prosperous New Year ! ! !
I will look forward to hearing from you and sharing your ideas.
Christopher D. Sposato
Integrity Resources
You may contact me at cdsposato@integrity.bm
P.S. My Side Bar:
I, as many in our industry do, appreciate automobiles, particularly vintage and classic models, and enjoy their art, engineering, and history. I am particularly fond of Cadillacs, which love dates back to my childhood and warm loving memories of my grandmother, Omey, my Dad’s mother, who had many a model over the years. With this in mind, I have been quite distressed, upset and mortified by the recent commercial advertisements for 21st Century Insurance, part of the Farmers Insurance Group. That car insurance company seeks to demonstrate its purported superior pricing to its rival Progressive Insurance by a demonstrative commercial in which a vintage 1960s (probably 1962) white Cadillac Eldorado Biarritz convertible is used to forcibly create its own parking space by parallel parking into a small slot between two non-descript mid-sized cars. The Cadillac backs into and rams one of the non-descript vehicles, then goes head first into the other, then back and forth till comfortably parked.
I find it offensive that such a beautiful, venerable, vintage automobile was used and desecrated in this way.
So, let’s say, for the sake of argument, that this bullish activity may have been staged as a dramatization – At a minimum, shouldn’t 21st Century Insurance be required to clearly state in its ad that “No Cadillacs were damaged in the filming and production of this advertisement” as they do for animals in certain films, cosmetic studies, and documentaries? I suspect that no proper automobile enthusiast will be doing business with 21st Century Insurance, and even perhaps the rest of the Farmers Insurance Group, any time soon, despite its claim to pricing superiority.
For some historical pictures of vintage Cadillac Eldorado Biarritz convertibles see, for example:
http://www.car-nection.com/yann/dbas_txt/eld56-66.htm
