Nontraditional capital has mixed effect on Bermuda insurance market

SOUTHAMPTON, Bermuda — Nontraditional capital coming into the insurance market benefits buyers but poses both potential positives and negatives to the Bermuda market, according to panelists participating in a round table discussion Monday opening the 2014 Bermuda Captive Conference.

“I think it has advantages and disadvantages,” said Everard T. Richards, Bermuda's minister of finance. With the new capital entering the market, there is “a great deal of innovation going on,” Mr. Richards said.

“After the trauma of 2008, asset managers were desperate to find investment instruments that did not correlate with financial markets,” Mr. Richards said. “And they have hit upon insurance and particularly the type of insurance that we do in Bermuda.”

The capital being deployed in Bermuda speaks to the domicile's status as an insurance market leader and a “crucible” of market innovation, the finance minister said.

“The disadvantage is when you have a whole lot of capital chasing the same amount of risk, you're going to drive insurance prices down,” Mr. Richards said. “There's also the risk of commoditizing the type of insurance products that we have developed in Bermuda over the last 30 years.”

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“We do see some changes in the commercial market” with the new capital entering the market, said round table participant Carolyn Snow, president of the Risk & Insurance Management Society Inc. and director of risk management for Louisville, Kentucky-based Humana Inc. But, she said, “We view any (increase) in capacity as a good thing.”

Shelby Weldon, director of insurance licensing and authorization for the Bermuda Monetary Authority, said that while some of the capital in the market might be coming from new sources, the source has no impact on regulation. “I think the source of capital … is changing,” he said. “But as regulators that doesn’t change what we do.”

Companies funded with untraditional capital have to meet the same international standards and Bermuda requirements as other insurers, Mr. Weldon said, and might even be held to higher scrutiny depending on the investment strategies of the entities behind the risk-financing capital.