“The industry is generally quite pleased with the results, but I think there is a hint of underlying softness in the market that is in part perhaps driven by the arrival of the new capacity,” he said, noting that the new Bermudians generated some $7 billion. “My guess is that as we get to the latter part of this year, were going to hear a lot more about the new capacity. The January renewals gave us the first glimmer of whats ahead.”

Most players, new and established, are not taking as much risk, according to Mr. Watson. “I havent heard any of the new Bermuda companies providing lines of more than $25 million, but they probably will before too long,” he said.

Chris Hills, managing director at Guy Carpenter Inc. in London, said the new capital proved to be beneficial to his clients “in that it put a damper on the expectations of the rest of the market as far as the catastrophe products in particular were concerned.”

David Shipley, underwriter for Lloyds Syndicate 2791, which is managed by Managing Agency Partners Ltd. in London, agreed that the new capital limited the extent of rate increases in catastrophe business. “But I think its fair to say that there are a lot of classes that are labor-intensive and detail-intensive where the effects of the new capital are not being felt,” he said. If the risk is complicated, doesnt have a big premium, or involves a large number of transactions, then the Bermuda capacity is less interested, he added.

However, Mr. Shipley speculated that this is likely to change, given the history of previous generations of new Bermuda capital. “You would expect them to try and diversify at some stage, three-to-five years down the track,” he said.

James Vickers, managing director of reinsurance for Willis Ltd. in London, said he didnt subscribe to the view that the new Bermudians are going to shorten the hard market in all lines of business.

There is a reasonable argument that the new capital will likely limit the hard market for property-catastrophe risks, he said, but its different for property-facultative single-risk business, where “there is still a serious lack of capacity, despite the new money thats come in.” He added: “I think they will have an impact and they are already having an impact in one or two areas, but in other areas I think we need lots more capital.”

The new Bermudians are concentrating on writing property-catastrophe risks for which models have been available for 10-to-15 years, he said, which is “easily explainable to their shareholders.”

However, for single-risk business, there was much less capacity available because nobody has any reliable long-term models. “The results [for single-risk business] have been very, very poor and people are being far more cautious about their [probable maximum loss] definitions,” he said.

Many reinsurers are increasing their PML percentages and at the same time reducing their overall lines, “so this is why, in the facultative, single-risk area, there is a real crunch,” he explained.

Mr. Hills agreed that on single-risk business, the Bermuda capacity hasnt had an effect–at least, not yet. “But once they add up the mathematics and find out how short they are of income, theyll start looking around for other classes of business to write,” he predicted.

Mr. Watson said the rate increases in property-catastrophe were due in part to the Bermuda capacity, but also because capacity for the reinsurance industry hasnt shrunk much, despite 9/11. “The top-four reinsurers, while they took a huge hit from the World Trade Center, still have the ability to write as much risk as they did pre-Sept. 11,” he said. “So half the market really hasnt been touched by it.”

In addition, he said, the lions share of 9/11 claims have not yet been paid, although theyve been reserved for. “Companies have remarked to us anecdotally that theyre surprised at how slow the claims are coming in on the World Trade Center,” he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 18, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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