New Bermuda Insurers Formed:
As the proverb says: “It’s an ill wind that blows no man good.” Even Katrina, one of the “illest” winds of all time, has brought some good fortune to the reinsurance markets. No less than eight new companies have been formed, or are in the process of being formed–all of them in Bermuda. The first was Harbor Point Re at the end of October. Citadel Investment Group, a hedge fund that manages around $12 billion, formed a new Bermuda-based reinsurer, New Castle Re, with an initial capitalization of $500 million. Ex-Marsh CEO Jeffery Greenberg has gotten back in the game as the head of Validus Reinsurance Limited. Three prominent Lloyd’s insurers, Hiscox Plc, Omega Underwriting Holding Plc and Amlin Plc decided that Bermuda was a bit livelier than London (and perhaps financially more remunerative). All are forming insurance and reinsurance subsidiaries based on the island. Another U.K. insurer, Lancashire Insurance Co. Ltd., is reportedly also forming a reinsurance subsidiary there. And finally investment bank Goldman Sachs is forming Arrow Capital Re. Although there’s less capital involved than flowed into the island following the Sept. 11 attacks, it’s still significant–around $6 billion and counting.
Converium to Restate Earnings
: Swiss reinsurer Converium announced that, following an extensive internal review of certain “non-traditional reinsurance transactions” (i.e., the investigations into finite reinsurance contracts), it will restate its prior earnings statements and delay publication of its third quarter results. The company said it plans to release the restated earnings and Q3 results by mid-December. “Until the restated accounts are released, previously published financial statements should no longer be relied on,” said a company announcement. Despite Converium’s assurances that there would be no adverse effects on its capitalization, Standard & Poor’s put the Group on its CreditWatch/Negative.
Management Changes at RenRe:
Renaissance Re, one of Bermuda’s major property reinsurers, is going through some tough times. Investigations by the SEC and the issuance of “Wells” notices to the company and its long-time President and CEO James M. Stanard, have prompted a management shakeup. Stanard, the acknowledged master of mathematical models, abruptly resigned. John Lummis, chief operating and chief financial officer will retire at the end of his contract term on June 30, 2006. The board of directors appointed Neill Currie as CEO and a member of the board. W. James MacGinnitie was named as non-executive chairman. RenRe also promoted Kevin J. O’Donnell to president of its Renaissance Reinsurance Ltd. subsidiary, and Ian Branagan, currently managing director of RenaissanceRe of Europe in Dublin, is slated to become head of Group Risk Modeling in January 2006. Lummis indicated that he is committed to supporting the company in the transition. Both Standard & Poor’s and Fitch Ratings announced ratings downgrades.
French Insurers Face Riot Claims:
The latest estimates from the urban violence that has rocked France since the end of October put the damages at around $235 million. But the French insurance industry is so far coping with the depredations. Economic Minister Thierry Breton declared that he had received assurance that claims would be paid as soon as possible. Jean-Luc Le Boissieu, Secretary General of the Groupement des entreprises mutuelles d’assurances (Gema), a trade association that acts on behalf of France’s mutual insurers that write a majority of the country’s mandatory auto coverage, agreed. He said Gema members would pay all auto claims, regardless of whether the insured carried all risk coverage, as quickly as possible, and would waive any deductible amounts. He also said he believes that the impact on the French insurance industry will be minimal, “unless the violence continues.”
AXA Embraces Securitization:
France’s AXA group has launched a securitization transaction of part of its French individual auto insurance portfolio. AXA plans to transfer to the financial markets the deviation of the cost of claims above a certain level, in relation to AXA France IARD’s motor insurance portfolio, which is characterized by high claims frequency and low claims severity. The move is something of a breakthrough in the use of an ART by a major insurer for a non-specialized risk. Insurers have so far placed around $2.5 billion, mainly in alternative risk transfers, but the global capital markets total around $6.5 trillion.
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