“All this will not be finished in the first hundred days. Nor will it be finished in the first thousand days, nor in the lifetime of this administration, nor even perhaps in our lifetime on this planet. But let us begin.” - John F. Kennedy, 1961
Wednesday, September 12: Like businesses everywhere, the insurance industry starts to look at the economic effect of yesterday’s events. For Aon and Marsh, in particular, the losses are incomprehensible. Hundreds of staff members were at work when the planes hit the World Trade Center.
Initial estimates of total losses are posted on the wires: $15 billion, of which the Bermuda market is expected to pay out $1 billion. These are numbers plucked out of thin air by journalists desperate to meet deadlines; no one can yet begin to estimate what the losses will be.
ACE is the first Bermuda major to come to the wicket, with a claims estimate it will later revise: third quarter net, after tax, will be reduced by $400 million. Separately, Annuity & Life Re says it expects no significant financial loss.
Thursday, September 13: XL Capital estimates $600 to $700 million in net losses. Its New York operations were located away from the financial district, but a financing deal is delayed when the markets close down.
RenaissanceRe says its share of losses from the attacks will be “significantly smaller” than would be indicated by its catastrophe reinsurance market share. The company places no figure on its claims at this stage.
Scottish Annuity & Life Holdings says it “does not expect to be adversely impacted.” Max Re “does not expect a significant claims impact.”
Friday, September 14: Partner Re estimates its damage claims in the range of $350 to $400 million. Its losses will be principally in property, aviation and catastrophe treaties.
IPC Holdings estimates its loss at $75 million. The catastrophe specialist credits its relatively low level of losses to strict territory limits.
Trenwick’s preliminary estimate of losses is $50 million to $75 million, net. The bulk of the estimate is from catastrophe reinsurance underwritten by LaSalle Re.
PXRE says its net loss is expected to be in the range of $30 million to $35 million. The company returns its focus to its core broker-market property catastrophe reinsurance business.
Sunday, September 16: Everest Re estimates it will face $75 million in claims.
Much of the global (re)insurance industry works the weekend, calculating and recalculating the consequences of the largest loss in the history of insurance. The brief is two-fold: the underwriters must determine as accurately as possible at this stage the losses to be faced. The accounting people work with those estimates to assess the company’s financial condition, its ability to meet claims, the potential need to raise replacement or additional capital and, in extreme cases, the effect of estimated losses on loan agreements. From an administrative perspective, uppermost in everyone’s thinking, although unspoken, is the effect claims will have on financial strength and creditworthiness ratings.
Later, many who worked that weekend will say that the work comforted them, despite the appalling human cost of the tragedies and the difficulty in coming to terms with what is perceived as a new world.
During that week: Friends at MMC Capital track down John Charman, who was in Bangkok when the planes hit the World Trade Center. “We had been talking about setting up a company in mid-2002,” Charman says, “but I felt before September 11 that the industry needed one more financial reporting season before we started. You might say we had been meandering towards 2002.”
James Stanard, chairman of RenaissanceRe, spends the week in meetings. “The first task was to think about our employees and ensure their safety,” Stanard says. “Then, the people we knew who were in, or might have been in, the World Trade Center. Then, trying to assess what our losses might be.”
As to the market, “it had already turned and was hardening, prior to September 11,” Stanard says. “It was clear that the events of September 11 would cause a huge crunch.
At our first team meeting to think about our focus, we found there were only so many things we could do. We knew quite quickly that, fortunately, our losses were controllable, and two days after September 11, we offered coverage incepting in June 2002, because we believed it was important to maintain the continuity of our business.”
Stanard tasks Jay Nichols, president of Renaissance Underwriting Managers, whose job is to manage the company’s joint ventures (Top Layer Re, OPCat), to consider the practicalities of establishing a new business to meet anticipated demand.
Monday, September 17: Hans Rohlf, chief underwriting officer for North America for Hannover Re, reports that rumours of terrorism exclusions were ill-founded. He confirms that European reinsurers had tried to put a terrorism exclusion into the World Trade Center coverage after the bomb attack in 1993, but soft market conditions in the mid-1990s prevented the industry from insisting.
Max Re Capital announces it will purchase up to $15 million of its outstanding common shares.
ACE establishes a fund to aid the families of the victims of the September 11 attacks, to which it will donate a million dollars a year for five years.
ESG Re says its total exposure will be less than $1 million. Mutual Risk Management “does not expect any material adverse impact on earnings.”
Wednesday, September 19: In New York, Charman shakes hands with Jeff Greenberg and Chuck Davies of MMC and sits down to map out plans to jump-start their meandering idea. “We first set about determining how to raise the capital,” Charman says. “It was clear it would take a huge effort, but Bob Newhouse (chairman of MMC and the man who co-founded ACE, XL Capital and Mid-Ocean Reinsurance during earlier capacity shortages) and I set about it.”
Global estimates of losses from the events of September 11 hit $17.5 billion. The figure is based on claims estimates emerging from insurers and reinsurers worldwide and will prove hopelessly inadequate
Thursday, September 20: RenaissanceRe Holdings announces the first new capital for Bermuda, adding $60 million to its commercial property insurance subsidiary, Glencoe Insurance, taking its total capital to $100 million.
Having fed the insurers’ and reinsurers’ loss estimates from around the globe into their financial computer models, the ratings agencies issue a rash of watches and warnings on many of the world’s largest (re)insurance companies. Standard & Poor’s (S&P) places Lloyd’s of London and companies in the US, Bermuda and elsewhere on CreditWatch negative as the reopened stock markets fail to firm. Bermuda companies on CreditWatch negative include: Centre Solutions (Bermuda); Commercial Risk Reinsurance; Hannover Re; Markel; PartnerRe; PXRE; Trenwick (which was already on a negative watch); and XL Capital, excluding XL Capital Assurance and XL Financial Assurance.
Friday, September 21: Brian Duperreault, chairman of ACE, and Brian O’Hara, chairman of XL, are among a small group of insurers who meet with President George Bush at the White House to discuss insurance matters, notably terrorism coverage.
O’Hara later comments: “We confirmed our resolve to stand behind our commitments to policy holders; we talked with the President about the need to ensure that claims payments reach families hit by this disaster and we discussed the need for the Federal government to create some type of pooled facility to cover future terrorist attacks. We did not ask for any kind of Congressional bailout.”
Fitch places the ratings of ACE, XL Capital and Markel on rating watch negative. The Bermuda negative watches will almost all be removed in a matter of weeks as the companies announce plans to raise new capital to replace their estimated losses.
That week: Stanard, Nichols and the Renaissance team conclude that the impending shortage of capacity will merit the formation of a new reinsurer. Renaissance will invest, but capital partners are sought. “We approached a handful of organisations with whom we have a business relationship,” Stanard recalls. “State Farm, with whom we have a successful venture in Top Layer Re, were in a position to make a quick decision. DaVinci Re was born that week. We didn’t have to go through a marketing period and seek out new investors. We had a base in place and were confident we could get the capital. That meant we did not have to delay our entry in the upcoming renewal season.” In the ensuing weeks, Renaissance staff would be busy contacting the Bermuda licencing authorities, the broker market and clients.
Monday, September 24: ACE updates its loss estimates from $400 million to $550 million, excluding mitigation. S&P places the company and some collateralised notes on CreditWatch as a result. Best lowers Trenwick’s financial strength rating. Losses from the events at Stirling Cooke Brown Holdings “will be negligible.”
Thursday, September 27: Announcing that it expects $5 million of gross claims, Max Re hikes its share repurchase programme from $15 million to $40 million.
Friday, September 28: Following an extended period of market buzz, MMC Capital, the private equity subsidiary of Marsh & McLennan, says it will set up Axis Specialty Insurance, a new Bermuda (re)insurer with at least $1 billion in capital. Charman will be chief executive officer and Newhouse chairman.
Annuity & Life Re estimates its exposure at $5 million to $7 million.
That week: Insurance companies worldwide had been considering suspending policy coverage after September 11 for the US aviation industry, had lawmakers not agreed upon a liability provision covering terrorist attacks. That provision is included in a $15 billion airline bailout package approved by Congress and signed into law by President Bush.
The word on the street is that a number of new companies are about to come to market, most based in Bermuda. American International Group (AIG) is repeatedly mentioned in this context, as is Aon.
“I was working for Aon,” says Kenneth LeStrange. “My business unit was profoundly affected on September 11. We lost 180 employees. We spent the first couple of weeks dealing with the trauma, getting the business back up and running.” The idea of a start-up was not discussed in those first two weeks. The following week, however, the matter was raised. “There was a healthy scepticism,” LeStrange says. “People were interested in what would be unique.” A decision was made to develop a business plan for the company that would become Endurance Specialty.
Also that week: Anthony Taylor receives a phone call from Benfields. A visit to Taylor’s office follows, at which Benfields say they are “thinking about setting up a billion dollar reinsurance company in Bermuda,” Taylor recalls, adding: “They had a long list of just one for who would run it.” At home that evening, he discusses the idea with his wife, Sandra.
The next day, Taylor speaks to Jack Byrne, chairman of the White Mountains Group, and the two men agree on a course of action. Taylor then departs on a two-week cruise with his wife and friends, a trip that had been arranged earlier in the year.
Wednesday, October 3: RenaissanceRe Holdings reports that it expects losses of $50 million net, $100 million gross, from the events of September 11. Separately, the company announces that it has filed a shelf registration for up to $400 million of new capital.
Thursday, October 4: XL Capital announces that it expects gross claims of $700 million net, $1.8 billion gross. Ninety-six percent of the reinsurance cover is rated A or better. Trenwick revises its WTC loss estimate to $100 million, net. Trenwick’s estimate is based on the latest estimate of total losses, which has coalesced at $35 to $40 billion.
American International Group (AIG) announces that it has completed the placement, on behalf of the co-insurance market, of aviation war risk and hijacking liability coverage totalling $1 billion per airline in excess of the $50 million aggregate provided by the primary aviation market. The coverage offers $150 million in excess of $50 million aggregate and up to $850 million in excess of that $150 million. Co-insurers in the AIG-led $850 million master line slip include Bermuda’s ACE, Everest Re and XL Capital.
Tuesday, October 9: RenaissanceRe announces the formation of a new Bermuda-based property catastrophe reinsurer, DaVinci Reinsurance. Founding investors include State Farm Mutual Automobile Insurance ($200 million) and RenaissanceRe itself ($100 million).
Friday, October 12: IPC Holdings adds $20 million to its original $75 million claims estimate, “based on updated communications from some of its clients.”
During that week: Semi-retired insurance executive Michael Morrison takes a telephone call at his home in Maine from M. R. Greenberg, chairman of AIG. Morrison, who serves as a consultant to AIG, gained extensive experience over 35 years with the company. Greenberg explains that AIG intends to start a new insurance and reinsurance company, and that he wants Morrison to head it up. Morrison writes “Bermuda” on a piece of paper and shows it to his wife, Eileen. She smiles, he smiles, and Morrison is on board to lead the $1.5 billion-dollar venture that will become Allied World Assurance Company. Morrison had been to Bermuda once before - as a child travelling with his British father in 1934, the year before Bermudians formed the first offshore company in Hamilton.
Meanwhile, half way around the world, Taylor’s cruise has taken on a less than relaxing aspect: the creation of a business plan for the company that would become Montpelier Re. “Faxing business plans from Albania was a little unusual,” Taylor says, adding as an aside that in the process he racked up the largest mobile phone bill he’d ever heard of. He flies back to London from Venice with his wife and friends. They go home and he flies on to New York to present his business plan to the main investor the following day.
“We took a decision at that meeting to proceed,” Taylor says. “White Mountains subscribed for $200 million and we set about raising the rest.”
Monday, October 15: RenaissanceRe Holdings sells 2.5 million of its common shares under its shelf registration, realising $233 million to be used for general corporate purposes.
Tuesday, October 16: The White House proposes a plan to help insurance companies absorb further terrorism claims. The Federal government offers to pay 80 percent of the first $20 billion of insured losses resulting from a terrorist act. Above $20 billion in insured losses, the Federal government would pay 90 percent, and the insurance companies 10 percent.
Under the proposal, in 2003, the insurers would pay 100 percent of the first $10 billion in losses. The government and the insurance companies would each pay half of any losses above $10 billion. Should those losses in 2003 exceed $20 billion, the government would pay 90 percent of the insured losses beyond that threshold. The programme is intended to expire in three years.
It is hoped that the proposal will be enacted quickly, but the lack of a subsequent attack reduces concern and months pass without any proposal becoming law.
That week: The business plan drawn up for Endurance Specialty is approved. LeStrange will head the Bermuda operation. “As events unfolded, it was a good fit with my business background,” he says. “The company I worked for before September 11, Aon, was going to be one of the sponsors of the new company.”
Endurance moves to raise its capital. A billion dollars was the minimum threshold at which the business plan would work “in terms of our knowledge of clients and the likely perceptions of the ratings agencies,” LeStrange says. “We were aware that many others were out there raising money, too.”
Tuesday, October 23: XL’s quarterly financial statements record WTC losses of $750 million pre tax, and $680 million after tax.
“Wholesale withdrawal from terrorism coverage is shielding the US insurance industry from widespread rating actions after the attacks on September 11,” S&P reports. “Virtually all insurers have already rewritten existing policies to exclude terrorism coverage or have announced their intentions to do so when premiums are renewed in 2002.”
Wednesday, October 24: Tapping a team of insurance industry veterans, Arch Capital Group, a Bermuda-based insurance and financial services company led by veteran Bermuda hand Robert Clements, launches Arch Reinsurance, its $1 billion in place.
Paul Ingrey, a former chairman and chief executive officer of F&G Re, is named to run Arch Re. “Dwight Evans had been bouncing work off me,” Ingrey explains. “I had been out of work for almost five years. But when the unfortunate events in September took place, it didn’t take Bob Clements long to realise that this was a whole different thing and that there might be a better opportunity than the one that existed in August.
“I think he had a game plan which included several people and I hope I was the first person on his list,” Ingrey continues. “I loved being retired but it just seemed to all come together. A lot of it is that I love to compete, no matter what it is, and I love working with the people in this business, and the chance to do both at the same time is just very appealing. The chance to be in Bermuda is a real plus too.”
He adds that Arch had previously formed new companies, and had already gained the necessary approvals. Arch had established a Bermuda company in June, in anticipation of an opportunity following market hardening in the reinsurance sector. “And as smart as some people might think the board of Arch Capital Group are,” Ingrey says, “they certainly didn’t have this in mind. The market was limping along. It was still a little bit underwater, price-wise, in general. Rates were coming up a bit and then we had the worst tragedy that any of us have lived through.”
Peter Appel, president and chief executive officer of Arch Capital, says: “Our strategy over the last year and a half has been to build a specialty insurance business with a platform that allows us to generate both premium and fee income. The recent acceleration of already improving pricing conditions in the marketplace has led us to conclude that we should pursue the underwriting opportunities that currently are before us, provided we could access significant capital and pair it with great underwriting talent. We are especially pleased to be able to link the advantages of our platform with this extraordinary underwriting team and two of the most highly regarded private equity investors in the world.”
The US National Association of Mutual Insurance Companies votes to endorse an offshore property catastrophe facility available exclusively to member companies, which RenaissanceRe will underwrite. The maximum authorisation per programme is 50 percent of the limits or $50 million in premium, whichever is less.
ACE announces that it intends to commence a public offering of $1 billion of its ordinary shares, plus up to an additional $150 million of ordinary shares to cover over-allotments. ACE intends to deploy the new capital by, among other things, expanding its net underwriting capacity.
Thursday, October 25: ACE sells 28.6 million ordinary shares in a public offering, which raises $1 billion. ACE grants the offering underwriters an additional $150 million in ordinary shares at the same price to cover over-allotments. ACE’s quarterly financial statements show WTC claims of $558.8 million after tax ($636.9 million pre-tax).
Friday, October 26: PartnerRe announces that it intends to raise $350 million of new capital in the form of trust preferred and convertible preferred securities, before the end of the year.
Monday, October 29: Folksamerica, a broker-market reinsurance company headquartered in New York City, announces that it will receive additional support from parent OneBeacon to boost Folksamerica’s capital to $1 billion. OneBeacon is owned by the White Mountains Insurance Group of Bermuda.
Tuesday, October 30: S&P reports that, despite the effects of September 11, the global insurance industry remains hale. “Depending on new loss activity, we should see a very profitable year in 2002, and 2003 will be well positioned for a profitable performance based on expected rate increases,” says Don Watson, director of S&P’s insurance analytics team in New York.
Thursday, November 1: Everest Re Group announces that it has filed a shelf registration statement with the SEC to enable the company to offer common shares up to an aggregate of $575 million.
Friday, November 2: White Mountains Insurance Group announces that it will establish Montpelier Re, a new Bermuda-based property and casualty reinsurer capitalised with $1 billion. White Mountains will be a founding shareholder and is expected to invest at least $200 million. Jim Byrne will be chairman.
Monday, November 5: Larry Silverstein, leaseholder of the World Trade Centre, files suit against ACE and XL Capital, seeking to force them to resolve disputes over September 11-related insurance claims. The two Bermuda insurers will settle by mid-February, ahead of Silverstein’s other insurers.
Word circulates in Bermuda that ACE’s catastrophe modelling had taken as its worst-case scenario two airliners hitting the World Trade Center. A Bermuda newspaper later confirmed the reports. “You know, when I heard that, I felt much better,” says a Bermuda broker who asked not to be identified. “Before then, it seemed that only men with an inhuman perspective could have thought of such behaviour. The fact that regular guys had come to a similar conclusion, albeit for different reasons, enabled me to begin to place what had happened on the human scale of experience.”
Tuesday, November 6: Alleghany Insurance Holdings completes the sale of Alleghany Underwriting to Talbot Holdings, a new Bermuda-based insurance holding company formed by the senior management of Alleghany Underwriting and an investor group led by Heidi Hutter, formerly president and chief executive officer of Swiss Re America. Talbot Holdings intends to continue the business on a new capital base.
Mutual Risk Management enters into a three-year agreement to provide a full range of accounting and administrative services to Axis Specialty. As part of this agreement, Andrew Cook, MRM’s chief financial officer, will also act as chief financial officer of Axis.
Wednesday, November 7: Aon and Zurich Financial Services sponsor the formation of Endurance Specialty Insurance, a new Bermuda-based insurance and reinsurance company. Plans include capitalisation of approximately $1.2 billion with investments from several parties. LeStrange is named the chief executive officer.
Thursday, November 8: White Mountains Insurance Group files with US regulators to offer up to $1 billion worth of debt securities, preference shares, preferred securities and guarantees and junior subordinated debt securities. The company will use the proceeds for general corporate purposes, including repayment of borrowings, working capital, capital expenditures, share repurchase programmes and acquisitions.
Having gathered commitments for more than $1.6 billion, Axis Specialty is incorporated.
Friday, November 9: The global total of new capital promised to or raised by the insurance industry in the wake of September 11 approaches $15 billion.
“An absolute flood of capital - much put up by unsophisticates - is pouring into the insurance industry,” says Warren Buffett, chairman of Berkshire Hathaway, the largest US reinsurer. “Consequently, any period of strong pricing will almost certainly end within a year,” he says. Although Buffett is held in high regard throughout the industry, for once few agree with his analysis.
Tuesday, November 13: Allied World Assurance Company is incorporated.
Thursday, November 15: DaVinci Re is launched, with $500 million in clean capital and financial strength ratings of “A” from S&P and Best. DaVinci Re accepts and binds business with inception dates from today.
PartnerRe announces that it expects to issue $175 million of 2004 PEPS units and $200 million of its 2031 trust preferred securities.
Tuesday, November 20: On a single day, three new billion-dollar insurers take huge steps forward.
Arch Capital Group closes $763 million in private equity funding, increasing the company’s capitalisation to over $1 billion of invested capital.
Evans says: “It’s been a race since October. Paul Ingrey and I had worked together for 25 years and we knew what we wanted to do, we knew what needed to be done and we knew the people we needed. That helped a lot. And at times like this, when it is important to be quick to the market, these things matter.”
Also that day: Axis Specialty announces that it has raised more than $1.6 billion through a private placement of its equity securities and has been licenced in Bermuda to underwrite specialty lines of insurance and reinsurance. “We could have raised much, much more, but had a regard for the best interests of our shareholders,” Charman says.
The company takes offices on Pitts Bay Road, which it sets up largely as a single space. The internal walls of Charman’s office are glass. “Our compelling combination of a substantial, unencumbered capital base aligned with a proven, strong and capable management and underwriting team will quickly position the company as a market leader,” Charman says.
“It never occurred to me to go any place (other than Bermuda) when we were forming this company,” says Newhouse. “Our original target was $1 billion. We began to see the size of the displacement of the business, and the opportunities that would be created as a result of that, and the fact that we had a great number of friends wanting to invest in the company. We then went to a target of $1.5 billion and will close out a little in excess of $1.6 billion.”
Terrorism cover is included by Axis on particular risks. Charman has good experience of writing such cover. His goals for Axis include making the company a leading underwriter of terrorism insurance.
On the same day: Montpelier Re announces that it has raised the $1 billion of capital it targeted. “We stand ready to bring the King of Lloyds to Bermuda,” says Byrne, who becomes chairman of the new company, adding: “The Wall Street Journal last week called (Taylor) one of the three kings of Lloyds and we can’t figure out who the other two are.” Byrne cites Taylor’s track record as an underwriter at Lloyds with the Wellington Management Group, a publicly traded Lloyd’s underwriting vehicle. Taylor is to join Montpelier Re in January. The company sets up in the original ACE Building on Woodbourne Avenue.
Wednesday, November 21: IPC Holdings says it intends to offer approximately 15.2 million of its common shares in a public offering.
PartnerRe completes its concurrent offerings, resulting in net proceeds to the company of $363.5 million. The underwriters’ over-allotment is worth a further $24.2 million.
Monday, November 26: AIG, Chubb and GS Capital Partners, an investment fund managed by Goldman, Sachs, announce the formation of Allied World Assurance Holdings and its wholly-owned subsidiary, Allied World Assurance Company (AWAC), an operating company organised to underwrite, from Bermuda, insurance and reinsurance business worldwide.
The new company has total equity capital of approximately $1.5 billion. AIG contributes $291 million and Chubb and GSCP each contribute $250 million of the equity capital, with the remaining amount contributed by outside investors.
AIG chairman and chief executive officer Greenberg serves as chairman of the board. Chubb chairman and chief executive officer Dean R. O’Hare serves as deputy chairman. Walter B. Kielholz, chief executive officer of Swiss Reinsurance, joins the board of directors of AWAC.
Commenting on the formation of the company, Greenberg says: “Insurance markets have experienced unprecedented demand for a number of coverages, without which businesses cannot operate prudently. AWAC will supplement existing market capabilities and capacity, providing a broad range of insurance coverages worldwide for businesses that have large and complex risks.”
O’Hare says: “Many companies in the United States and around the world already are finding it difficult to purchase the insurance and reinsurance they require to mitigate complex risk exposures. With the January renewal season upon us, this problem is only expected to worsen. By bringing together substantial underwriting resources with a solid capital base, AWAC will help to provide a viable solution.”
Tuesday, November 27: Goshawk Insurance Holdings says it intends to raise £100 million ($140 million) through a placing. Net proceeds will be applied to capitalise and provide working capital for Goshawk Reinsurance, a new wholly owned reinsurance subsidiary that will be based in Bermuda. The placing and open offer is the largest share issue ever undertaken by Goshawk and more than doubles the share capital of the company. Goshawk Re plans to underwrite marine excess of loss, non-marine catastrophe, marine retrocession, aviation excess of loss and finite reinsurance, with premium income exceeding US $150 million in its first year of business.
By today, according to the Disaster Insurance Information Office, 11,925 commercial disaster claims and 7,668 personal claims, with a total value of $9.64 billion, have been filed as a result of the events of September 11. The Insurance Information Institute lists the attacks as costing $40 billion to date. The Institute estimates that primary insurers will pay around 36 percent of losses on a net basis, with most of the remainder being paid by reinsurers.
Wednesday, November 28: Both Axis and AWAC start writing business.
“All support service for AWAC is provided under contract by AICo,” Morrison explains. “This allows us to focus on what we do best. When I arrived, the pencils were in the trays and accounting, data processing and actuarial services were in place. That gave us a tremendous start.”
Thursday, November 29: Allied World Assurance Company says it will begin writing property catastrophe treaty reinsurance through an exclusive agency agreement with IPCRe Underwriting Services. Effective December 1, AWAC will offer capacity of up to $12.5 million per programme.
That week: Sheila Nicoll, a Bermudian with extensive industry experience, receives a phone call from Gill & Roeser, financial advisors to a group of investors that is considering forming a Bermuda-based company to write property catastrophe and other short-tail reinsurance lines. Within three weeks, Nicoll will be announced as president and chief underwriting officer of Olympus Re, a $500 million start-up backed by Leucadia National, Gilbert Global Equity and other investors.
Wednesday, December 5: Best assigns an initial financial strength rating of A- (Excellent) to Axis Specialty.
Thursday, December 6: Best assigns a rating of A- (Excellent) to Arch Reinsurance (Bermuda) and Arch Reinsurance (US).
That week: “The great thing for Bermuda is that it is absolutely created for a high-tech solution for the insurance and reinsurance world, because you can’t put five million people on the Island,” Charman says on his arrival in Bermuda. “So if ever there was an opportunity to substantially build on this great franchise, by capturing that technology and really propelling it forward, I think now is the time. Its got to be.”
Monday, December 10: PXRE signs a definitive agreement with Capital Z Financial Services Fund II, investment funds managed by Reservoir Capital Group, and Richard Rainwater to invest $150 million in new equity capital in the form of convertible preferred stock. Following the transaction, PXRE’s total capital will increase to more than $500 million.
Tuesday, December 11: Arch Capital Group announces that Constantine (Dinos) Iordanou will join the company from Zurich Financial Services to become president of Arch Worldwide Insurance and Reinsurance Group (Arch Worldwide). Iordanou will join the board of Arch Capital Group.
Wednesday, December 12: IPC Holdings raises $547 million in new capital. It receives net proceeds of $380.4 million from a public offering of its shares. Underwriters choose to exercise their option to purchase an additional $57.1 million worth of shares for a total of $437.5 million from the public offering. AIG buys 2.8 million shares at the public offering price and exercises an option to purchase a further 2.8 million shares. Total funds received from AIG amount to $109.5 million.
On his birthday, Taylor is notified that Montpelier Re’s $1 billion has been put in place.
Thursday, December 13: Montpelier Re is granted a Class 4 licence to do business in Bermuda.
Friday, December 14: Montpelier Re starts “putting down lines.”
Endurance Specialty closes a private placement that raises $1.2 billion of capital. The company is authorised as a Class 4 Bermuda insurer and begins underwriting commercial property and casualty insurance and reinsurance immediately. Endurance establishes headquarters at The Zurich Centre on Pitts Bay Road. “We could have raised more,” says LeStrange. “There was a lot of money out there, looking for an opportunity.”
PartnerRe announces that it has filed a shelf registration statement for the proposed offering from time to time of up to $600 million of securities. The company will have the flexibility to sell debt securities, common and preferred shares, warrants and share purchase contracts and units, as well as trust preferred securities or a combination of the above.
That week: “This event has redefined risk,” Rolf Hueppi, chief executive of Zurich Financial Services, tells insurers at a gathering in New York. Global claims estimates reach a new consensus of $70 to $100 billion. Figures released to date by insurance and reinsurance companies around the world total only half that figure.
By now: European reinsurer Copenhagen Re has closed its doors to new business, and Japanese insurer Taisei Fire and Marine has failed under the weight of September 11 claims from an aviation underwriting pool in the United States. Other companies in North America and Europe are exiting the market entirely. More problems will follow, analysts say, as the complicated web of reinsurance coverage plays out over the next year or two.
Monday, December 17: Endurance Specialty opens its doors for business.
Wednesday, December 19: Best assigns a financial strength rating of A+ (Superior) to Allied World Assurance Company. This initial rating assignment reflects the strategic benefits the company is expected to receive through its association with the AIG and Chubb organisations, its strong capitalisation and its experienced management team.
Best also assigns an initial financial strength rating of A- (Excellent) to Montpelier Re. The company’s capitalisation of $1 billion is financed with approximately $850 million of common equity, led by founders White Mountains Insurance Group and Benfield Group, along with $150 million of bank debt. The initial rating reflects the company’s strong initial capitalisation, management expertise and sound sponsorship. Additionally, the rating considers Montpelier’s conservative limits profile and catastrophe management strategies.
Thursday, December 20: Alea Group Holdings (Bermuda) says it has received $250 million of new capital, increasing the group’s total operating capital above $500 million. The new capital includes a previously announced investment from Kohlberg Kravis Roberts and additional institutional financing. Alea Group Holdings (Bermuda) has been formed in connection with the creation of a Bermuda-based holding company for the Alea Group (formerly Rhine Re).
Best upgrades the financial strength rating of RenaissanceRe’s commercial property insurance subsidiary, Glencoe Insurance, to A (Excellent) from A-. This rating reflects the company’s favourable operating experience, excellent capitalisation, and strong risk management capabilities.
That same day: Presaging a January renewal season that will last deep into spring, Ingrey tells a Bermuda newspaper: “Everything is late. We are very late. The actual signings are way behind. It’s not broker-competitive; it is just that everything is in a state of unrest.”
On December 21, Olympus Re put its capital in place and opens its doors for business. By year’s end, Goshawk’s $140 million was in place, having been over-subscribed. A second wave of medium-sized companies was expected before summer 2002, with half a dozen in various stages of development by March with a further $3 billion in capital.
Not all the money that was raised in those first 100 days went immediately into insurance or reinsurance contracts. In fact, rather less than half was in use by January 1. No one expected it to be otherwise.
Missing from the party, for the most part, are the banks. Convergence of the capital markets would suggest that a more significant percentage of the new capital would have come from the banking sector. The general view is that the insurance industry was simply nimbler, and that the banks had taken a pessimistic view that circumstances have yet to bear out.
It might be hyperbole to suggest that Bermuda saved the world in the 100 days between September 11 and December 20, 2001, but it might not. As we all came to grips with a new reality, capital saw an opportunity and went to the most efficient place in the world to meet that opportunity. That place was Hamilton, Bermuda, a town of 177 acres with insurance assets in excess of $135 billion by the end of 2001.
“Bermuda, even with the fine companies who were here before the events of September 11, was a limited marketplace,” says LeStrange. “With the addition to those companies of new capital and new people, a geographic centre has been created in Bermuda where people may come to generate solutions. It’s a fascinating phenomenon.” BB |
