Looking good

As those of you brave enough to step out in EC3 in February may already be aware, I was recently asked to address the Insurance Institute of London on the subject of 'How Bermuda looks to me now'. Being something of a veteran of the Bermudian reinsurance market, and not generally known for shying away from an expectant audience, it may have seemed that I was the natural choice to impart my observations on this subject.

However, despite feeling flattered, I had reservations about this opportunity. It is not that Bermuda is not a significant enough subject to warrant extensive examination - it is and it does. But the often implicit adversarial context in which this subject is usually placed helps perpetuate a myth that Bermuda exists as an entirely separate market.

I am constantly reminded that the (re)insurance market is now truly global, with all the inter-dependencies, co-financing and distribution of risk that the word connotes. While I ruminated on this, my attitude warmed to delivering a speech that would underscore these points with a message that Bermuda looks much the same as any other insurance market now (admittedly with a slightly warmer climate than most).

Yet, to state that Bermuda is a market like any other, in the wake of an increasingly homogenising global economy, does not do full justice to the topic. After all, Bermuda's meteoric rise over the past decade is not just an accident of circumstance, but testament to its business, fiscal and regulatory culture. With this in mind, I set to evaluating Bermuda's blooming health in order to identify the factors that make it thrive, and which could be applied to other markets.

The factors that drew (re)insurance capital to the island in the 1980s still hold true and still attract business and capital formation. I can think of no comparable international business centre that combines Bermuda's hallmarks of rate and form freedom together with a strong regulatory emphasis on overall solvency guidelines, combined with a 50-year tradition of insurance, a pool of trained insurance professionals and the right legal, banking and accounting service industry. Also, as I am keen to point out, conducive regulation does not indicate an absence of regulation nor a lack of transparency when it comes to outside examination. Over recent years, Bermuda has been reviewed by the Organisation for Economic Co-operation and Development, the International Monetary Fund and a number of other organisations - all of whom give the island good marks for fiscal control and regulation.

The vital mix that has sustained Bermuda's growth is a regulatory regime that fosters entrepreneurship and a commercial environment that does not tolerate a weak business model.

Analysing the factors at play in what is demonstrably a very successful insurance market, it becomes clear that the one element no market can afford to ignore is the ease of capital entry. Fresh capital is the lifeblood of our industry and it would seem there is a reluctance to encourage its development.

Placing unnecessary bottlenecks in the smooth flow of capital to address demand is something for which our industry is reluctantly famed. While this can sometimes serve those already in the industry rather well, there is no doubt that it hampers long-term growth, with those markets that stubbornly cling to outmoded capital structures losing out to their fleet of foot competitors.

Musing upon this, I started to consider how international capital flows are likely to change in the future. After seeing how Bermuda has flourished, are capital investors going to be rushing to supply demand coming from markets that cannot match its transparency and fluidity?

So, the question I would like to pose is not merely how Bermuda is looking from London, but how it will be looking from China and India and any other markets hoping to attract capital in coming years? By setting the benchmark for attracting and rewarding international capital, Bermuda has changed forever the dynamics that govern the evolution of new insurance markets.

(Re)insurers who are serious about conquering the biggest untapped markets in the world could rightfully draw wisdom from the 20.5 square miles set in the middle of the Atlantic.