Insurance survey reveals rapid change for chief executives

Hamilton, Bermuda, June 6, 2007 - New competitors, volatile weather patterns, an unpredictable underwriting cycle and the entrance of alternative capital providers force Bermuda market CEOs to constantly review their operational and strategic priorities, according to PricewaterhouseCoopers first Bermuda Market Survey, “Capitalising on opportunity: A time of change”.

To provide an insight into how Bermuda’s insurance and reinsurance companies are responding to the ever changing challenges they face, the PricewaterhouseCoopers survey canvassed the views of a cross-section of the market’s CEOs to identify their key issues, as well as to provide a unique insight into how they are being addressed.

Colm Homan, a partner, in PricewaterhouseCoopers commercial insurance practice, commented:

“We are delighted to present the results of our first Bermuda Market Survey which shows a high degree of consensus regarding the key issues facing CEOs. It is clear that none of these issues are straightforward and the significant impact of the storms of 2004 and 2005 is still being felt by the industry. Many feel that only an adverse hurricane season or a cycle downturn will realistically test the effectiveness and sustainability of the changes companies have made to address these issues.”

Most CEOs put underwriting and capital management at the top of their ranking of the many issues they face. Specifically, CEOs said they are most focussed on underwriting performance and cycle management. With the underwriting cycle currently at an inflection point, however, the survey showed that many organisations are now facing the challenge of how to ensure robust discipline and at the same time maintain the delivery of shareholder value.

Controlling aggregations of exposure and optimising their reinsurance coverage was in second place, followed by protecting and allocating capital as their next most important challenge.

The unprecedented series of devastating windstorms that hit southern US states in 2005, known collectively as KRW (hurricanes Katrina, Rita and Wilma) prompted Bermuda companies to renew their focus on risk aggregation.

Although Bermuda companies’ balance sheets coped well with the accumulation of losses from KRW, many were taken by surprise by the size of the hit. Storm surge and demand surge accounted for significant differences between actual and modelled insured losses, CEOs noted.

In addition, Bermuda companies are examining model changes being brought in by rating agencies and the impact these have on capital charges relating to natural catastrophes. This, plus the need to deploy capital profitably, is leading to a strategic rethink for many companies.

Sourcing new distribution channels is also a key priority, but reducing their dependence on a handful of dominant brokers is proving difficult to achieve in practice.
Number five of the top five issues on Bermuda CEO’s agendas in 2006 was the penetration of new markets, both geographically and by class of business. The survey showed that start-ups, formed to focus on US property-cat business, and more established companies, want to broaden their offering into other lines of business.