A M Best Queries Staying Power Of Bermuda Start-Ups

by Justin Gorringe, Tax-News.com, London

26 August 2002

A M Best, the leading source of insurance company ratings and information, has issued a report on the reinsurance industry which speculates on Bermuda's ability to sustain the current boom in reinsurance capacity on the island due to a lack of local intellectual resources and office space.

The report compares the current boom with the one which took place after Hurricane Andrew in the early 1990s, saying that the post-Andrew expansion was focused almost exclusively on catastrophe coverage, while the current boom is addressing the overall capacity crunch created by the unexpected losses for the September 11 terrorist attacks.

"The focus of these new start-ups, however, was not limited to property catastrophe risks but rather was on a broad range of reinsurance and insurance specialty-lines coverages, seeking to take advantage of cedants' security concerns by providing a substantial capital base," says the report. "The start-ups, not entirely focused on the catastrophe market, experienced significant growth in the first quarter of 2002, an indication of their acceptance by the market and the strength of the relationships harboured by the executives of these new companies."

The report adds: "Uncertain, however, is the ability of these Bermuda start ups to build the necessary infrastructure over time, as intellectual resources and office space are in high demand and short supply on the island."

A M Best question the staying power of the new start-up companies, saying that global weakness in equity markets makes IPOs difficult, so that consolidation is inevitable, with companies seeking to merge or be acquired by existing operations.

Nonetheless, says the report: "If history repeats itself, at least one or two of these newly formed companies might emerge as one of the top 35 reinsurers in the world."

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