1

Continued on page 14

In this issueHunting more captives ............................. 2US benefits from Bermuda business ...... 3Insurance innovation in the wind ............ 4In the face of more threats ....................... 5Advice and a new way forward ............... 7

The Official Journal of the Bermuda Insurance Industry 2010 Vol. 3

Canadian Consul General Daniel Sullivan and Bermuda’s Deputy Premier and Finance Minister Paula Cox ink the bilateral deal at a ceremony at the Premier’s official residence at Camden in Paget parish. The accord provides for a full exchange of information on criminal and civil tax matters between the two countries.

Bermuda and Canada signed a bilateral agreement formalizing a full exchange of information on criminal and civil tax matters.

The Tax Information Exchange Agreement (TIEA) was signed by the Finance Minister and Deputy Premier Hon. Paula A. Cox and Canadian Consul General Daniel Sullivan.

Canada is one of a score of countries to sign a TIEA with Bermuda and negotiations have been concluded to sign others.

Tax accord benefits Canadian captivesThe Bermuda/Canada

accord includes all standard means to ensure due process is followed in tax information requests to Bermuda, including, for example, provisions to protect the confidentiality of information provided, as well as adhering to public policy, provisions related to protecting legal privilege, and to ensure that requests for information from Canada are relevant to tax investigations being conducted by Canadian authorities.

The pact extends an important benefit to Bermuda that previously had been conferred only to countries with which Canada has a double tax treaty.

Dividends of foreign affiliates resident in Bermuda that are paid to their Canadian parent companies out of the active business income earned in Bermuda, will be exempt from Canadian taxation. This will be particularly useful to Bermuda’s captive insurance industry.

Minister Cox commented: “Bermuda and

Canada have enjoyed a strong and fulsome relationship over the past 150 years, covering a wide range of interests including economic development, education, health care and tourism. Canadian companies are hugely involved in the captive, hedge fund and private equity areas of the International Business sector and more recently in the banking arena.

“Conversely, a large percentage of Bermudian youth complete post-secondary education in Canada. In fact, there is a Memorandum of Understanding between the Government of Bermuda and the Government of Canada that guarantees Bermudian graduates of Canadian universities work in Canada for two years to gain valuable international experience.

“Even today Bermudian students may seek assistance from Bermuda Department of

One of the world’s most powerful bankers has recently backed Bermuda’s future as a leading financial services center with both his words and deeds.

The top executive at HSBC bank has opened a huge, newly-built,

banking hall on Front Street in Bermuda’s capital City of Hamilton – declaring in an interview that in the global scheme of the entire HSBC franchise, the Bermuda business

Michael GeogheganGroup CEOHSBC

Top banker predicts Bermuda growthwas punching above its weight in the HSBC group.

Group Chief Executive Officer of HSBC Michael Geoghegan arrived in Bermuda accompanied by the bank’s executive board – members who had traveled from the four corners of the earth to be in Hamilton for the opening of the bank building.

Mr. Geoghegan told Bermuda’s political and business leaders gathered for the official opening:

“Bermuda is a major cornerstone of the financial services industry, worldwide.

“It is the home of the world’s largest captives.

It is one of the world’s largest reinsurance centers. It is one of the biggest electronic securities trading services. It’s all the more reason why the world’s largest international bank is here in Bermuda.

“It has been a trying time in financial services. It would be right to say that HSBC’s team of over 300,000 employees in 88 different countries have each day played their part in strengthening your bank – HSBC across the world, and in particular here in Bermuda.”

He told the Island’s daily newspaper that Bermuda is “one of the more major countries in the (HSBC) group, which might surprise some people. Because it is small by geography, doesn’t mean it is small by contribution (to the total HSBC group)”.

The Official Journal of The Bermuda Insurance Industry

2

2010

Bermuda’s captive sector is pursuing growth opportunities in emerging markets, strengthening its position as the world’s number one captive domicile.

This from Thomas McMahon, President

of the Bermuda Insurance Management Association (BIMA), the umbrella organization for the Island’s captive insurance management companies, who says rival domiciles should know that Bermuda will not be sitting on its laurels.

“It’s important that we in Bermuda don’t become complacent and just let business come to us,” said Mr. McMahon, the President of Cedar Management Ltd., who succeeded Peter Willitts as BIMA president earlier this year.

“To maintain our position as the world leader, we should be out there marketing the domicile, letting people know why we are number one and why we will continue to be number one.”

In talks with those interested in establishing Bermuda captives, Mr. McMahon has found that Bermuda’s ability to fully-service a client’s risk management needs is a major advantage over rival domiciles.

“Bermuda is an expensive domicile, we can’t deny that,” Mr. McMahon said. “But you pay for what you get and if you want value for money, then Bermuda is the place to be.

“There are great professional services here and a tremendous amount of experience. We are not just a captive domicile. We’re

Thomas McMahonPresidentBIMA

Hunting more captivesalso a major insurance and reinsurance centre. So we’re a one-stop shop and that’s a major selling point.”

Many captive owners timed their captive meetings on the Island to coincide with their reinsurance renewals, he added.

Bermuda has nearly 900 active captive insurance companies, owned by many of the world’s biggest corporations, but there is still plenty of opportunity for growth, Mr. McMahon said. The Island’s captive market is now reaching far beyond its traditional Fortune 500 client base.

“I think there is huge potential for captive business for Bermuda from Latin America and the Far East,” Mr. McMahon said.

“We have the ALARYS (Latin American RIMS) conference here in Bermuda in October and I understand that there are significant opportunities for captive development in Argentina and Brazil, in particular.

“There are also opportunities in Asia - I myself have been talking with two interested parties from China, for example. There are still many organizations out there that do not have captives and the Bermuda market has the infrastructure to grow its captive business.”

As well as having all the legal, banking, accounting and the captive management expertise that a prospective captive owner would require, the Island’s physical infrastructure can take growth after the construction of a large amount of new office space over the past three years.

High on the agenda of the Bermuda captive community right now is the potential impact of Solvency II - the new rules for insurers being introduced in 2012 by the European Union.

Bermuda’s insurance regulator, the Bermuda Monetary Authority, intends to achieve regulatory equivalence with Solvency II, so

Bermuda companies writing business in the EU will not be competitively disadvantaged.

Mr. McMahon is concerned at the lack of distinction between large commercial insurers, writing business with third parties, and captives, whose main business is underwriting the risks of the corporations that own them, partially or wholly.

“In Bermuda, we all agree that Bermuda does need to achieve equivalence for its big Class 4 and 3B commercial (re)insurers,” Mr. McMahon said. “But we do not want to see the regulatory environment change for our Class 1 and 2 captives, as we believe that applying Solvency II standards to them would be totally inappropriate.”

The BMA has stated that it does not wish to change the regulatory standards that have helped to nurture a hugely successful captive sector that has flourished for four decades in Bermuda. But Europe’s insurance regulators have yet to clarify how the imminent new rules will apply to captives.

Like all areas of financial services, the captive sector had something of a bumpy ride during the financial crisis. At the same time as investment returns slumped, premium volume also declined to varying degrees, depending on sector, as economic activity declined.

Not surprisingly, new captive formations fell in Bermuda, as it did with rival jurisdictions. For some owners, captives provided something of a lifeline in the depths of the liquidity crisis.

“A lot of parent companies were looking within their groups to see where they could get cash resources,” Mr. McMahon said. “Some looked at their captives and said, ‘OK we need to pull back those resources’. So liquidations went up, as they did in all domiciles. Overall, I believe the captive sector came through very well.”

New option being considered for healthcare captive reinsurance

Bermuda reinsurers could provide another first in captive insurance, by providing a new, standardized Bermuda Reinsurance Certificate for captives and improve captive reinsurance.

This view is being advanced by Wesly

Wesly GuiteauSVPWillis Bermuda Ltd.

Guiteau, Senior Vice President and head of the healthcare team at Willis Bermuda Ltd.

He said the fall-out from the recent financial crisis has substantially affected how captives seek reinsurance, as captive boards seek to insulate themselves from potential instability of reinsurers, by spreading the risk even further.

There has been a significant push from captives to diversify their reinsurance programs by reducing and shifting capacity from a single carrier in favor of multiple carrier relationships.

Mr. Guiteau, stated, “If we work hard enough with a single focus to satisfy our clients’ needs and if we seize the moment as we have done in the past, this new form will strengthen Bermuda’s leadership position and enhance its competitiveness and marketability for years to come.”

Historically, a healthcare captive could issue

$100M policy and reinsure the top $90M to $95M with two or three reinsurers. Now that single block of capacity is very likely to be split into multiple layers with several reinsurers, as a way to mitigate against carrier downgrades or outright insolvencies.

Mr. Guiteau said, “Like any other deviation from normal pattern of behavior, this fundamental change in buying philosophy brings with it several potential risks, the most obvious of all is the serious potential for coverage gaps and legal divergence on the settlement of claims. How then can captives buying reinsurance achieve both market diversification and maintain coverage continuity?

“The Bermuda markets are reassessing their current model of multiple reinsurance certificates in favor of a more standardized

Continued on page 3

3

The Official Journal of The Bermuda Insurance Industry 2010

A just released study highlights the surprisingly substantial economic benefit Bermuda business is to America.

And not surprisingly, the bulk of that beneficial business relationship is as a result of the Island’s international insurance and reinsurance industries.

The report “US–Bermuda Economic Relations: Economic Impact Study- 2009” was produced by Stonebridge International, an international advisory firm headquartered in Washington, DC with offices in Beijing and Shanghai.

Produced for Bermuda trade group, Business Bermuda, the reports states that Bermuda is the:

• Most important off shore supplier of insurance, reinsurance, and payer of property and casualty losses to the United States;

• 4th most important export market for US financial services and insurance;

• 8th most important supplier of energy shipping services to the United States;

• 11th most important export market for total US private sector services; and

• 15th most important export market for US business and professional services.

The report further states that the Bermuda insurance industry, and the

Bermuda business benefits USprofessional services that support that sector, are the leading foreign sources of insurance and reinsurance services to the US

It cites recent studies stating:• Bermuda’s property and casualty

insurance sector is the most efficient in the World - and pays out claims the fastest.

• Bermuda supplies 50 percent of Florida’s homeowner catastrophic insurance market, and offers Florida homeowners premiums that are less expensive than competitors in the United States and Europe.

• 23 Bermuda reinsurance companies supply 40 percent of the catastrophic event property and casualty coverage for the entire US market. Bermuda insurance companies have helped stabilize the US economy in the wake of numerous catastrophic events.

• In the 15 years between Hurricane Andrew (Florida, 1992) and Hurricane Ike (Texas, 2007) the United States sustained $500 billion in property and casualty losses, inclusive of earthquakes, terror attacks, etc. Of this total amount, Bermuda covered $84 billion or 16.8% of these losses.

• After Hurricane Katrina in 2005, businesses in eight Gulf Coast states, from Texas to Florida, needed $65 billion

in private and public assistance to rebuild (in addition to assistance needed by homeowners). The federal government supplied $34 billion, while the rest came from insurance. It is estimated that Bermuda insurance payments to US businesses supplied more than 10 percent of that assistance. Bermuda insurance restored or created more than 20,000 jobs in 2006 in those regional economies.

Bermuda is also a major insurer of American cropland.

• Thirty-five percent of US crop insurance is underwritten by Bermuda-owned insurance affiliates, and 55 percent of the gross premiums ceded by insurers to reinsurers comes from Bermuda.

• In 2008, more than 250,000 US farms in 40 states depended on Bermuda insurance and reinsurance firms to hedge annual crop-related risks. Bermuda’s captive commercial liability insurance and reinsurance sector fills an important capacity shortage for US companies.

• Approximately 75 percent of the 500 leading companies in the US have captive insurance subsidiaries in Bermuda, which help provide worker’s compensation and other lines of liability coverage.

The report can be found here: http://www.biba.org/docs/BermudaEconImpact.pdf

model that will seek to eliminate these coverage inconsistencies. Such a change will shift the pendulum from a defensive posture to a more aggressive leadership position. It will help Bermuda reassert its position as the leader in creative solutions to risk transfer and risk financing, including captive reinsurance.

“Aside from the current political climate in Washington vis-à-vis Bermuda’s status as a tax exempt jurisdiction, market diversification is arguably one of the biggest threats facing the Bermuda marketplace to date.

“The reinsurance carriers should use their unique underwriting model which facilitates face to face meetings with a majority of clients to investigate this issue further in search of a long term and lasting solution. The advantage of meeting clients face to face year after year creates a unique set of opportunities to understand, investigate and solicit feedback from a big pool of existing, as well as potential, clients.

“As such, reinsurers in Bermuda are better placed than others to assess and react to client needs in a changing market environment.

“Such an investigation would likely confirm a deep sense of concern and ambivalence from clients on the issue of coverage consistency. As such, Bermuda needs to be proactive and answer the call. If we fail to do so, it would not only prolong the continuing threat of losing business to the US but it would also erode Bermuda’s sense of itself as the leader of creative solutions for the insurance and reinsurance world.

“Whether we like it or not, it is happening. Clients are diversifying their programs in favor of multiple relationships. The new reality is that to build $100M tower, we now need five to ten different carriers each with their own reinsurance certificate with potentially different subjectivities and exclusions, creating a maze of coverage gaps. This new reality presents brokers and underwriters alike with an opportunity to help our clients find ways to effectively address these coverage issues.

The biggest obstacle thus far is that many of these captives are multi-purpose insurance vehicles and as such, their forms tend to be

broader than standard commercial policies. Therefore the likelihood of extending coverage where coverage was not intended, is simply too great.

This underlying issue means that we would have to concede flexibility to the reinsurers in how and when this new reinsurance certificate could be deployed based on the acceptability of the captive policy they seek to reinsure.

“In this perspective, a new, standardized Bermuda Reinsurance Certificate for captive clients would seek to eliminate that level of inconsistency and would offer our clients the unique opportunity to buy all or a majority of their capacity on a single form while creating multiple relationships with financially sound carriers.

“The Bermuda markets currently reinsure healthcare captives from many jurisdictions including Bermuda, Cayman and Vermont. Accordingly this standardization can have a significant industry wide benefit.

“We expect that Bermuda reinsurers will act swiftly on the finalization and implementation of the new certificate process to provide the same level of consistency that is provided in General Liability with the standard market forms.

New option being considered for healthcare captive reinsurance

Continued from page 2

The Official Journal of The Bermuda Insurance Industry

4

2010

Insurance innovation predicted

An evolving professional lines marketplace could lead Bermuda carriers to flex its innovative muscles once again, to benefit some of America’s largest companies.

They may be called upon again to bring new

products to the fore to better help these clients, even though the Bermuda companies already have a reputation for maintaining market share.

Managing Director of Bowring Marsh (Bermuda) Ltd., Iain W. MacLeod said that even with excess capacity in Directors and Officers and other financial lines, the Bermuda Market has a more than 90 percent business retention rate and maintains a reputation for innovation in the field.

And, he doesn’t expect that to change. The financial market that brought soft

pricing has been a boon to professional liability buyers, although the financial institution side of the business saw some not unexpected rate increases.

Mr. MacLeaod said, “Our commercial clients’ pricing has stabilized and we expect it to continue that way for the rest of the year. There have been many new entrants to the field, bringing more competition and capacity. A lot of our clients purchasing insurance are looking around at other products and their overall relationship with an underwriting company.”

There were rate increases at the end of 2009 for the financial institutions, with more stabilization in 2010. And the commercial clients have seen more stabilized pricing. Mr. Macleod said he expects that to continue for the remainder of 2010.

He said, “When they purchase insurance, a lot of our clients are looking at the total relationships with an underwriting company - not just D&O and professional liability, but maybe casualty property, as well.

Sizing up the competition

Soft pricing, as a result of over-capacity in the insurance markets, keep the prospect of mergers and acquisitions on the front burner for Bermuda market insurers. But there is also increasing pressure for consolidations, as the

set-point for critical mass trends higher.But how big do you have to be to compete

in the soft market? In any market?President of Aon (Bermuda) Ltd. Joe Rego

observes that early 2010 catastrophes, including several earthquakes and mid west flooding, didn’t seem to have any effect on soft market rates.

He said, “The market is very competitive. Bermuda still has as much capacity as ever, but there is more difficulty in deploying it because there is so much capacity and competition globally.

“Rates have continued to deteriorate pretty much across all direct lines of insurance throughout the year. The recent oil rig disaster in the Gulf of Mexico and the ongoing release of crude oil into the waters of the Gulf is certainly starting to have a hardening effect on premium rates in the energy sector – offshore drilling in particular – but that is not likely to arrest the decline in premium rates for other industries and lines of business.

“Despite significant catastrophe loss activity during the year so far, including earthquakes and floods, there is so much capital and capacity in the industry that I don’t see any of these things having a dramatic effect on premium rates – at least not yet.

“With predictions of a very active windstorm season this year, as well deteriorating combined ratios and rates of return on capital among insurance carriers, perhaps we will see at least some stabilization of rates as the year progresses.

“Under these prolonged soft pricing conditions it would appear that Bermuda has lost some market share as global competition for premium dollars has heated up, but that is to be expected”

“At some point, there become too many players in the market, and that’s what increases the likelihood of mergers and acquisitions. Again, it is hard to actually predict, but a lot of those companies that have had outstanding results over the last couple of years, despite the highly competitive market, have benefited from

Iain MacLeodManaging DirectorBowring Marsh

Joe RegoPresidentAon (Bermuda) Ltd.

the ability to release loss reserves from prior years.

“That’s less likely to be sustained going forward. With premium rates coming down and loss activity increasing, we are seeing the combined ratios of some insurers rising above 100 percent and the return on capital in single digits.

“At some point, you’re going to see that having an effect on the market – whether it is mergers and acquisitions, share buy-backs or special dividends. There will likely be some capital going out of the market because it is just not sustainable at the current trend. The rates of return are not likely to be acceptable for investors over the long haul under current conditions.”

“All things remaining the same, this may be particularly true of the Bermuda market, but not exclusively to the Bermuda Market. We’ve already seen some of this with the Max Capital and Harbor Point deal leading to the formation of Alterra Capital, and the Validus and IPC merger.”

“It’s hard to say how many more opportunities exist here. It is more difficult when you get into portfolios that have more significant long tail liability. It’s been proven in the past that while you can do all the due diligence practically feasible it is difficult to make a true assessment of long tail liability.

“You might not just see companies merging, but companies aggressively going after certain portfolios of business to complement their existing book. Organic growth is very difficult under current market conditions and therefore M & A becomes a more compelling solution to the challenges of growing your business and better leveraging your capital base.

“Company size is also one of the challenges for the newer players. Since 2001, the unofficial requirement for entry into the large account insurer / reinsurer space has been a billion dollars in capital, however it would appear that the bar has now been raised.

“Now the question is: ‘Is a billion dollars enough?’

“So, this creates another challenge: You’ve got a lot of capital in the business in general, and then specific companies who may be perceived as not having enough. Hence they are aggressively looking for ways to build up their capital, and M&A is one of those ways.”

This is a meaningful consideration. In the Alterra Capital deal, for example, that brought Max Capital and Harbor Point together, the capital base was approximately doubled and the combined company was granted an A rating by A M Best, whereas Max had previously been rated at A-.

“Obviously, that was a key objective. It just changes the profile of the company.

“Regardless of the technical adequacy of

your capital base for the levels of premium written, the perception of investors and buyers is what really counts – and of course, the perception of the rating agencies.

“As one Bermuda CEO asked during a recent interview: What is the new number? Two billion dollars, three billion?

“One thing is certain. The bar has definitely been raised. And the agencies’ ratings get a great deal of attention. Moving from an A- to an A is meaningful.”

5

The Official Journal of The Bermuda Insurance Industry 2010

“So underwriters are looking to round out the suite of products they can offer clients.

“There is only a finite amount of Fortune 100 or Fortune 250 clients in the world, so insurance companies are trying to sell as many products to those clients as they can.

“And that client retention rate in Bermuda of well over 90 percent is remarkably high. Bermuda has been writing D&O for 25 years now, and many people forget that. It was the arguably the birthplace of D&O insurance and certainly the forefront of prime development over the years.

“Clients, who have bought into the concept of spreading their risk globally, have continued to find capacity in Bermuda.”

There are marketplace mergers and some failures, Mr. MacLeod said, and there is always going to be competition, requiring Bermuda to keep an eye on several emerging issues such as Solvency II and Basel II.

He said, “There is regulatory uncertainty and financial uncertainty, but people are not buying any less coverage. So, on the horizon there will be opportunity for Bermuda to once again be at the forefront of product development.

“Bermuda has a high expertise in underwriting and the capability and the financial security to address clients’ future needs.

“EPL (Employment Practices Liability) is another strong product out of Bermuda written on a primary basis. When clients see a market wracked with uncertainty they look to insurance carriers and their brokers to find a solution and so you can expect to see new things out of Bermuda carriers. More multi-year contracts are likely to come back as a feature, and Bermuda is well positioned to offer that.”

Top execs back Bermuda over external threats

Leading insurance executives believe Bermuda can overcome external political threats to survive and thrive into the future.

Both Mark Byrne, co-founder of Flagstone Reinsurance

Holdings Ltd., and Mike McGavick, CEO of XL Capital Ltd., have come out to bat for the Island against political and legislative threats.

While stepping down as Executive Chairman of Bermuda-based global reinsurer, Flagstone Re, Mr. Byrne said the Island’s insurance market remained strong.

Earlier this year, Flagstone moved its holding company from Bermuda to Luxembourg, but the Island is still home to a major underwriting unit, staffed by 55 people, and the base for Flagstone’s CEO David Brown.

“I remain very optimistic for Bermuda’s future,” Mr. Byrne said. “It has a very sensible and sound regulator [the Bermuda Monetary Authority] and although there certainly are some political threats from the US and the G20, I think they’re relatively remote.”

He said the important factor for the Bermuda market’s future is not whether insurers domicile their holding companies on the Island, but that brokers and underwriters continue doing business here.

“What really matters is brokers getting off airplanes with submissions,” he added. “This industry brings in thousands of “expats” who make a lot of money and spend it on rent, airfares and in stores.

“As long as catastrophe reinsurance continues to be written here, the market can continue to grow. I’m even seeing some green shoots in other lines of reinsurance.”

Mr. Byrne has proposed the idea of a Bermuda Insurance Exchange to further strengthen the market. He said he had suggested the idea to the Bermuda Government, with the aim of fleshing out the concept through a feasibility study and finding partners to be owners of the Exchange.

He said he remained confident that the

idea could work and that the ball was in the Government’s court.

Like many other reinsurance start-ups over the past two decades, Flagstone benefited from Bermuda’s regulatory

efficiency. Barely three months after Hurricane Katrina, Flagstone opened its doors for business with around $550 million in initial capital.

As of March, the company had total shareholders’ equity

of more than $1.2 billion and 14 offices in 13 countries – even after coming through the worst financial crisis since the Second World War.

Mr. Byrne said the company had reached a level of maturity, with a global platform in place, which allowed him to step down from his executive role, although he will continue to sit on the board as a non-executive director. Daniel James will replace him as chairman, while Mr. Brown will continue as CEO.

Mr. McGavick, the XL Capital Chief Executive, is another outspoken proponent of the Bermuda market.

His recent acceptance speech for the Bermuda Insurance Institute’s (Re)insurance Person of the Year Award 2009, included comments about the growing encroachment of governments into the insurance industry.

“In Washington, a few foolish people want to destroy Bermuda to make some more money,” Mr. McGavick told an audience of colleagues and competitors: “Let’s remind them that we have been contributing to their well-being for a long time and we intend to do it for a long time more.”

Bermuda companies provide about 40 percent of the property-catastrophe reinsurance for the US and have paid out more than $30 billion in US claims in recent years.

A proposal in US President Barack Obama’s budget aims to limit tax deductions for reinsurers that cede a large portion of their US premiums to their non-US affiliates. If enacted, the move would impact some Bermuda-based insurance companies with US subsidiaries.

A group of US insurers is backing the proposal, but the European Union has deemed it discriminatory and a violation of free trade agreements.

Mr. McGavick is a former Chief of Staff to US Senator Slade Garton and a former Republican Party candidate for a US Senate seat in 2006.

Mike McGavickCEOXL Capital Ltd.

Mark ByrneFlagstone Re Ltd.

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The Official Journal of The Bermuda Insurance Industry

6

2010

From the desk of the Regulator

The Authority has reached another important milestone in its regulatory change programme. Recently we launched a pilot of our internal capital model (ICM) review process with selected Class 4 firms, which is a significant step forward in our regulatory change programme. The ICM framework and other planned framework enhancements are designed to prepare Bermuda for regulatory equivalence assessments of its insurance regulations with global markets. The Authority’s current equivalency efforts are focused on the forthcoming third-country assessments under Europe’s Solvency II.

The ICM framework will allow (re)insurers to use their own internal capital models, once reviewed and approved by the Authority, to determine the amount of regulatory capital that would be required for such companies.

We formally established the standards and applications process for permitting the use of insurers’ internal capital models in July of last year when we issued guidance notes outlining the various components

of the ICM framework. These components include detailed pre-application conditions (re)insurers must meet prior to submitting their models for review; the application

review procedures the Authority will follow; and the monitoring and control activities the Authority will undertake once a model has been approved.

The elements of the framework are in line with emerging international best practice and standards for reviewing internal models being set by bodies such as the International Association of Insurance Supervisors. They are also consistent with the provisions of Solvency II.

The ICM pilot currently underway will enable us to test the ICM review process, allowing for refinements to be made to the framework as required. The pilot will also assist in our resource planning to support the process moving forward.

The ICM assessment includes evaluating the adequacy of the design, statistical quality and calibration of the models submitted, and, importantly, the governance structure, controls and documentation surrounding them. It will also be heavily focused on determining the extent to which the models are used effectively and fully integrated into the strategic decisions, underwriting and

risk mitigation strategies of the participating firms.

Once the ICM framework is implemented, the Authority will provide approval for a model for regulatory purposes only if we are assured that all relevant minimum standards are met, and that an insurer has established an effective and suitable track record of reliable risk management. We will be applying rigorous scrutiny to the internal models submitted for review, given that application of approved internal models may result in reduced capital requirements for some insurers. We are also continuing to build on our technical resources to conduct the analysis that this initiative will require moving forward, currently adding further experienced resources to our existing in-house Actuarial Services team.

Conducting the ICM pilot is the result of a tremendous amount of work being undertaken by the Authority’s team to prepare the jurisdiction to meet the important goal of achieving Solvency II equivalence. I would like to acknowledge our Actuarial Services Unit for their efforts in this project, as well as the support we have received from consultants at Oliver Wyman in helping us build further, leading-edge refinements and robustness into the assessment process to Bermuda’s ICM framework.

Jeremy CoxChief Executive Officer

Bermuda Monetary Authority

Chairman of Quirk Group, Inc. Robert C. Quirk and colleague Gary Jon Jackson are seen pictured here visiting the Bermuda booth during the recent Annual Meeting of the American Association of Managing General Agents (AAMGA) in Palm Desert, California.

The Quirk group is currently working with several retail brokers and reinsurance brokers to further develop Bejar Indemnity (Bermuda) Ltd., their Class 3 cell captive.

Bejar Indemnity (Bermuda) Ltd. was formed in 2002 in order to provide expanded service to retail broker clients in the US, as well as to seek new business opportunities by having the Class 3, protected cell, captive available to work with insurers and others.  

Mr. Quirk noted, “It has taken off slowly, but we still see the opportunity to utilize Bejar in the future.  Currently, we have one

Gary Jon Jackson and Robert C. Quirk

Bermuda captive seeks expansion outside program in a protected cell, and a cell that we are using internally to transfer a portion of a catastrophe retention of its sister company, San Antonio Indemnity Company.”   Quirk & Company was founded in 1930 by William H. Quirk, Sr., to provide quality service to independent agents in south Texas. The company has been expanding out of its San Antonio home office, with branch offices now in Austin, Texas, the Northeast and the Pacific Northwest.

In addition to providing underwriting and brokerage services, sister companies, Mission Claims Service and Mission Premium Finance Company, provide related services.

The AAMGA is the trade association to leading international wholesale insurance professionals, and is a leader representing the interests of its members before the federal, state and local governmental and regulatory agencies, to elected officials and other industry trade associations in the US, Canada and Europe.

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The Official Journal of The Bermuda Insurance Industry 2010

The chief executive of one of the insurance industry’s largest business consultants

believes there are many reasons why the Bermuda insurance industry must be allowed to continue providing innovative insurance solutions to a global marketplace.

President and Chief Executive Officer of Oliver Wyman Group (OWG), John Drzik, is of the opinion that a unique talent base has been built in Bermuda that is hard to create elsewhere.

On the Island for Bermuda market meetings, he proposed a new direction for corporate evaluation and suggested a new standard for insurance regulation.

With regard to the Island’s industry, he said, “Bermuda is a very important insurance market. There are a lot of sophisticated players here. There is a talent base that is unique and hard to replicate.

“Bermuda reinsurers are out there on the risk tail, taking risks that most organizations don’t have the underwriting talent or capital to take.

“Bermuda’s success in the insurance market has developed over a long period of time and it should be a sustainable one. A regime change, say, because of tax law changes, would bring challenges but it would be very hard to replicate the sophistication of the talent community that exists here. It has become a critical part of the overall global insurance business.”

Mr. Drzik heads a company that uses more than 3,000 professionals to consult with a wide variety of industry players.

During an interview with Bermuda Insurance Update, he discussed a number of issues facing Bermuda and the industry today, including the ongoing debate on corporate size - how big an insurer or reinsurer has to be, to succeed in today’s market.

Mr. Drzik said, “I’m not sure that there is a magic number. The importance of scale is mostly a creditworthiness issue, and whether or not you will be accepted as a counterparty in the market. But

Consulting chief proposes new way forward

John DrzikPresident & CEOOliver Wyman Group

creditworthiness is not only about scale, but rather a mix of scale, diversification and balance sheet quality. Scale is no protection against underwriting bad risks.”

What about the rating agencies? Do we still need them to evaluate creditworthiness?

“The rating agencies may have been at the root of the problem of some of the recent financial crisis, but there is today no substitute for those agencies,” he offered.

“There are some negative feelings toward the rating agencies, yet it’s clear that there is a very strong need for an independent and objective credit evaluator.

“What surprises me is that no one has started a rating agency with a different business model. The existing agencies make their money from the issuers’ side and they are viewed as having conflicts. But there is no alternative originating from the investors’ side, or by a regulator. More competition in this space would be a good thing.”

Missing from all of the financial services regulatory reform that is being put forward, including those being considered by the US Congress, is a re-design of the actual regulatory structure.

Notes Mr. Drzik, “That’s unfortunate. Simplifying the regulatory structure and making more sense of it is very difficult to do. This was a window where maybe it could have been done – but was not. So, what is being done will probably not fully achieve the objectives.”

On a related matter, Mr. Drzik opined on the Solvency II initiative, saying, “The US state-based regulatory system is going to make it harder than it even otherwise would have been to get the US, Europe and others to agree on an international solvency regime. There is no federal solvency regulator in the US.

He continued, “For a consistent solvency standard, it may come down to the rating agencies again, because they still will be the only consistent evaluator of the risk across state lines and international lines.

“Some of the solvency models laid out for Solvency II are, of course, a lot stronger

than what the rating agencies use. So it would be better if a path could be found to align international regulators around a common standard.”

Mr. Drzik stated that there may be more industry mergers coming for Bermuda companies, but critical issues include whether consolidation participants can merge their corporate cultures.

He added, “It’s not only the strategic fit of the businesses that is important, but also the cultural fit of the businesses.”

XL wins new Florida approval

Bermuda-domiciled XL Re Ltd has qualified as an “Eligible Reinsurer” under the Florida Insurance Code.

In its consent order, the Florida Office of Insurance Regulation cited various reasons for granting approval to XL Re Ltd, including its secure financial strength ratings and its domiciliary regulatory jurisdiction.

XL Re Ltd is the first Bermuda reinsurer to receive such approval since Florida passed a rule based on 2007 legislation allowing state regulators to establish lower collateral requirements for foreign reinsurers that are highly rated and financially sound.

James H. Veghte, Chief Executive of Reinsurance Operations for XL Re’s ultimate parent, XL Capital Ltd., said: “This is good news for XL Re, the Bermuda market, and Florida. We are encouraged that Florida is helping lead the way in elimination of unnecessary collateral requirements on foreign reinsurers.

“We remain fully committed to meeting the reinsurance needs of our clients in Florida and around the globe. I also want to extend my gratitude to my XL colleagues who worked with the Florida Office of Insurance Regulation on obtaining this approval.”

XL Re is the global brand used by XL Capital Ltd’s reinsurance operations. The XL Re companies have more than 350 employees in 11 countries.

• Callforanewmodelforratingagencies• AdifferenttakeonSolvencyII• WhyBermudaisofglobalimportance

The Official Journal of The Bermuda Insurance Industry

8

2010

ScottGemmellSenior Vice President, Global Business Development LeaderMarsh IAS Management Services (Bermuda) Ltd.

Captive Voice Tappingintotheexpertiseoftheworld’sleadingcaptivemanagers

Bermuda maintained its position as the world’s leading captive domicile, with 42 new insurance company formations in 2009. Other leading domiciles experienced similar numbers meaning there was no change in the order of the largest domiciles.

Bermuda continues to be selected as the domicile of choice for corporations from all corners of the world. Smaller domiciles rely mainly on business from one area.

Based on Marsh’s single parent captive benchmarking data, Bermuda is the only domicile to attract business from the US, Canada, the UK, Continental Europe, Asia Pacific and Latin America.

The Bermuda Monetary Authority (BMA) has also published some research on this matter, in the 2009 paper entitled “A Profile of the Bermuda Captive Insurance Market”.

This paper illustrated that captives owned by organizations from South America and the Caribbean increased by 90 percent in the ten years between 1997 and 2007.

The BMA research also found that Bermuda based captives have been steadily writing more risk originating from Europe. In 2004, only eight percent of the risk retained in Bermuda captives was European. This figure had risen to 13 percent by the end of 2007.

The Bermuda market’s attractiveness to corporations all over the globe is what will ensure that Bermuda remains the leading

captive domicile for years to come. Clients tell us that reasons they choose

Bermuda as their domicile include:• Its firm, but flexible regulatory

environment.• The Island infrastructure that supports the

captive industry including experienced lawyers, captive managers, and banks.

• Bermuda’s location and ease of access from both sides of the Atlantic.

• The Island’s leading reinsurance market, enabling risk managers to hold their captive board meetings and finalize their reinsurance arrangements at the same time.

These valid points aside, there is more that continues to attract corporations.

As Bermuda continues to sign Tax Information Exchange Agreements (TIEAs) with countries from all regions, it further enhances Bermuda’s credibility as an offshore finance center and will help attract new business.

At the time of writing Bermuda had 21 signed TIEAs with countries from as far as Australia, Japan, Germany, Mexico and Ireland - to name a few.

Also, the BMA’s appointment as a member of the Executive Committee of the International Association of Insurance Supervisors (IAIS) is just one of a long line of successes for the Authority.

There is no doubt that Bermuda’s reputation as a leader in insurance regulation is significant and growing.

Finally, the effort professionals in the

captive industry in Bermuda invest in promoting Bermuda as a captive domicile is noteworthy. It broadens the understanding corporate decision makers have about alternative market insurance options available from Bermuda.

As an example, a delegation of captive professionals recently presented Bermuda Captive Seminars in Pittsburgh and Philadelphia, highlighting to Risk Managers the advantages of setting up a Bermuda captive.

TheBermudaCaptiveConference(BCC) – this year June 27-30 - is an annual opportunity for captive owners and prospective owners to review developments of the past year, and network with leaders in the captive world. It is actually a great educational opportunity on many fronts.

And in this special year, the Island has the great honor to host the Asociación Latinoamericana de Administradores de Riesgos y Seguros (ALARYS) conference – commonly referred to as the “Latin American RIMS”.

To be held at the Fairmont Southampton Resort October 11-13, it is the second time Bermuda has been chosen as host. The ALARYS educational sessions are simultaneously provided in three languages to accommodate attendees from a multitude of mainly Latin American and South American countries. The three languages are Spanish, Brazilian Portuguese and English.

New Bermuda reinsurer formed

Cartesian Capital Group, a global private equity firm, has incorporated Iris Reinsurance Ltd., an authorized Class 3 reinsurer based in Bermuda.

Formed in conjunction with Chase Toogood and Schuyler Havens, Iris Re will offer reinsurance primarily in the form of industry-loss warranties and cover a wide spectrum of catastrophic perils globally.

Industry-loss warranties are contracts triggered by market wide losses that usually

are purchased to protect earnings on treaty business.

Peter Yu, Managing Partner of Cartesian and a Director of Iris Re, said, “The global financial crisis has created a true dislocation in the reinsurance markets.

“While the underlying risks remain largely unchanged, the financial crisis has fueled both strong demand for reinsurance and a significant reduction in the reinsurance capacity of the capital markets. With a secure capital base and drawing on Chase Toogood’s broad experience in the Bermuda market, Iris Re will work creatively to meet the needs of the insurance and reinsurance industries.”

Cartesian Capital Group LLC manages more than $1.1 billion in private equity investments on a global and opportunistic basis.

Cartesian was founded in 2006 by Peter Yu and members of the senior management team of AIG Capital Partners, Inc., which the team founded and built into a leading emerging markets private equity firm.

Cartesian has over 20 professionals and offices in New York, Vienna, Warsaw, Bucharest, São Paolo, and Shanghai.

Cartesian’s recent activity in the financial services industry includes leading a R$400 million investment in Banco Daycoval, a mid-market bank in Brazil.

9

The Official Journal of The Bermuda Insurance Industry 2010

Winners at the Bermuda Reception at RIMS

The Risk Manager for agricultural distributor The Wilbur-Ellis Company has won a free Bermuda vacation, including air tickets and a hotel stay at the plush Fairmont Southampton Resort in Southampton, Bermuda.

The winner, Rodger Davies (pictured) of San Francisco, California noted that he had spent many a trip to Bermuda involved in business meetings, and he is likely to use the trip for corporate purposes, as he investigates the formation of a new

Bermuda captive.His name was picked out of a compilation

of business cards collected at the Bermuda reception during the 2010 RIMS Annual meeting in Boston.

And separately, Vice President, Risk Management at Acuity Brands, Inc., Mary Bruce Edmonds pictured (below right) with Chairman of the Bermuda Insurance Development Council Allison Towlson, was the proud winner of the prized 400th Anniversary coin of the Bermuda Monetary Authority.

Acuity Brands is the leading provider of

innovative, technologically advanced, sustainable lighting products and lighting-related solutions. The company’s lighting heritage goes back to 1898 and their vision for the future knows no limit.

Established in 1921, Wilbur-Ellis is an international marketer and distributor of agricultural products, animal feed and specialty chemicals and ingredients. By developing strong relationships, strategic market investments and the ability to capitalize on new opportunities, they’ve grown to a $2.5 billion business.

Opposing new taxesBermuda companies and organizations

have joined with a large number of American and European insurers, business and trade associations, and American legislators and interest groups in opposing a proposed reinsurance tax that they say is discriminatory.

And the Coalition for Competitive Insurance Rates (CCIR) has sent a letter to legislators warning them of the dangers of “punitive insurance tax legislation” currently pending in Congress.

The letter, sent to the Chairmen and ranking members of the House Committee on Ways and Means and the Senate Committee on Finance expressed concern over HR 3424, introduced by Rep. Richard Neal (D-MA), in addition to a similar proposal within the Obama Administration’s FY 2011 budget.

The letter, signed by a broad and diverse coalition of industry leaders, consumer advocates and trade groups, was raised during the annual meeting of the Risk and Insurance Management Society (RIMS).

The Risk and Benefits Officer for the Miami-Dade County School Board, RIMS board

liaison Scott Clark, said, “RIMS has always opposed proposals to restrict market access to insurance capacity.

“HR 3424 is a great threat to insurance capacity in the US. Over the past decade, it has been proposed several times, not surprisingly by a handful of US insurers which seek to gain, via a protected market that would allow them to charge higher prices.

“Nothing could be worse for US consumers. Efforts by US insurers to punish foreign competitors do nothing but harm US consumers and these proposals should be rejected.”

The Neal Bill has faced strong opposition from within the global insurance industry as well as from consumer advocates, business leaders and foreign governments.

To date insurance and agriculture commissioners from several disaster prone states, as well as representatives from the United Kingdom, Germany, Switzerland and the European Union have stated their objection to the proposal.

CCIR’s letter plainly lays out the objections to this bill: it is bad for consumers, violates longstanding US tax and trade policy, and it creates an anti-competitive marketplace.

Support for the Neal Bill comes from only a few powerful and profitable US-based insurers who stand to profit at the expense of American consumers and our trade partners around the world.

Nancy McLernon, the President and CEO of the Organization for International Investment, a business association representing the US subsidiaries of companies headquartered abroad, said, “There should be no question that the Neal Bill violates US treaties and WTO commitments.

“The recent letter sent to Secretary Tim Geithner from the European Union made it clear that this proposal has strong opposition from some of our closest allies.

“This proposal solely targets non-US companies and is therefore discriminatory in nature and creates an anti-competitive environment for companies who wish to invest in the US insurance market.”

The Coalition for Competitive Insurance Rates has submitted similar letters to Congress in recent years in opposition to such discriminatory reinsurance tax proposals. The Coalition is made up of business organizations, consumer advocacy groups, insurers and their associations.

The Official Journal of The Bermuda Insurance Industry

10

2010

A Bermuda reinsurer has created a foundation that is taking bold steps toward helping the world better understand how to deal with natural disasters.

RenaissanceRe created The RenaissanceRe Risk Sciences Foundation which was a key sponsor of “Opportunities for Integrating Disaster Mitigation and Energy Retrofit Programs” conference.

The Foundation was created to support advanced scientific research in atmospheric risks, the development of risk mitigation techniques to safeguard communities, efforts that reduce the economic turmoil following disasters, and organizations that preserve coastal habitats.

The Foundation promotes education, preparation, adaptation and mitigation of natural catastrophe risks through a number of activities, including the Hurricane Risk Mitigation Leadership Forum Series.

Attendees of the conference included representatives from the disaster safety community, policymakers and the insurance industry and focused on the important synergies between the areas of risk mitigation, structural resiliency and energy efficiency initiatives.

The event featured expert panelists from preeminent disaster safety, energy and environmental organizations, including the Federal Emergency Management Agency (FEMA), Community and Regional Resilience Institute, US Green Building Council, Rebuild Northwest Florida, and the Natural Resources Defense Council.

The keynote speaker was Dr. Sandra Knight, Deputy Federal Insurance and Mitigation Administrator of FEMA, whose presentation was entitled, “Before and After Disaster Strikes: Can you Think Green?”

The event was also sponsored by Ceres, the Institute for Business and Home Safety, and The Travelers Institute, and took place on

Capitol Hill in the US Senate Environment and Public Works Committee Room.

Michael Cohen, Director of the RenaissanceRe Risk Sciences Foundation, the company’s VP of Government Affairs and Moderator of the “Lessons Learned and Ways Forward” panel, said: “It was gratifying to see so many of the key players in the hazard mitigation field together in one room. It was clear there is a consensus about the need for more mitigation action from Congress and federal leaders.

“The enthusiasm and commitment from the conference participants will lead to more awareness about the value of and need for people to better protect themselves and their property from the dangers presented by natural catastrophes. RenaissanceRe is committed to helping lead this important effort.”

Stephen Weinstein, Chairman of the RenaissanceRe Risk Sciences Foundation and the company’s SVP & General Counsel, said: “We believe investment in disaster mitigation and other policies that proactively reduce risk represent the most promising means to help all residents of storm-exposed communities safeguard themselves from natural catastrophes and also, over time, to reduce the economic hazards faced by coastal families and businesses.”

Through its Risk Sciences Foundation, RenaissanceRe is committed to researching and developing risk mitigation techniques and raising awareness of the benefits of effective risk mitigation.

One of the company’s current mitigation initiatives is StormStruck: A Tale of Two Homes™, an educational attraction located in INNOVENTIONS, at Epcot® at Walt Disney World, where visitors experience the power of a weather event, while learning how to make their homes more resilient.

Another is the RenaissanceRe Wall of

Wind, a state-of-the-art testing facility that simulates the effects of hurricanes on full-scale buildings to improve housing construction practices and identify effective mitigation techniques.

Further support of disaster safety is achieved through the Hurricane Risk Mitigation Leadership Forum series. These invitation-only events convene leading scientists, academics, environmentalists, first responders, non-profit organization, public and private sector representatives to advance hurricane risk mitigation efforts and awareness.

Another forum, the Texas Risk Mitigation Leadership Forum brought together hurricane safety experts, policy-makers and thought leaders to focus on how Texas communities can be made safer from extreme weather events.

Montpelier Re prevails

Montpelier Re Holdings Ltd. has been informed that its principal operating subsidiary Montpelier Reinsurance Ltd. has prevailed in its previously disclosed arbitration proceedings with Manufacturers Property & Casualty Limited (MPCL).

The arbitration proceedings involved a dispute concerning two contracts pursuant to which Montpelier Re purchased reinsurance protection from MPCL in 2005.

The award dismisses MPCL’s claim for rescission of the Disputed Contracts and calls for MPCL to pay Montpelier Re the outstanding losses on the Disputed Contracts plus accrued interest through the date payment is made.

The amount of accrued interest due Montpelier Re is approximately $2.5 million.

The company also reports that it does not anticipate any increase in its net loss estimates associated with the Chilean earthquake and windstorm Xynthia over those previously recorded as of March 31, 2010, and also reaffirms its previously announced pre-tax net loss estimate of $20 million from the Deepwater Horizon rig loss.

Montpelier Re Holdings Ltd., through its operating subsidiaries, is a premier provider of global property and casualty reinsurance and insurance products. Additional information can be found in Montpelier’s public filings with the Securities and Exchange Commission.

RenRe spurs new thought on natural disasters

11

The Official Journal of The Bermuda Insurance Industry 2010

Summit hears from market leaders

The Bermuda Market has come of age, facing the cycles of any mature market, but with an optimistic future. That was the message from President and CEO of Marsh & McLennan Companies Brian Duperreault, who

himself was a key player in the building of the now thriving Bermudian insurance and reinsurance community.

Speaking to other industry leaders at the Insurance Day Summit Bermuda at the Fairmont Hamilton Princess Hotel, Mr. Duperreault declared that faced with any number of challenges, the Bermuda Market was here to stay.

He said, “This is no different to any other place in the world in that respect,” he said. “I frankly believe that the Bermudians have shown a tremendous practicality and pragmatism when necessary.

“This industry didn’t get to where it is without some positive work by the people of Bermuda. Therefore I think it is sustainable.

“If you look at Bermuda figuratively it may be trading below book, but we are just a crisis away from showing our true value.”

He said that Bermuda’s market – like all things in life – faces cycles, with market values in a perpetual ebb and flow. It would continue to thrive due to that cyclical nature and its position as a market leader allied to its ability to succeed and present solutions during a crisis.

“This is a cyclical place, it doesn’t grow in a straight line to the sky,” he said. “It wrenches forward and it declines - we have incredible job growth and then it starts running off as well as capital growth which then falls away and the declines are usually followed by increases.

“This is the way of life and this is the cycle of life, it is no different to any other business in the world. We are frankly the best in a crisis and that is how we make our mark in the world.

“I always say, in the insurance business when things are bad it is great and when things are great it is bad. It is great right now so it is bad in the insurance world.”

Mr. Duperreault, who opened the conference with this keynote address, said that the Island enjoyed strength in numbers and given a reasonable time horizon it had momentum going forward.

Mr. Duperreault took over the reins of ACE

Ltd. in 1994 as Chairman, President and CEO, declaring at the time that he intended to build the company into a global leader. He did just that, perhaps even more wildly successfully than even he imagined.

Coming from AIG, and at that time considered to be a potential heir apparent to Hank Greenburg, Mr. Duperreault deftly assembled key industry talent and strategically organized a global franchise.

He said he noticed the Bermuda potential early on.

“I said, let me look around here, this place has got legs, it has got everything we need to create quite an industry and in particular companies within it with great support. We just need to diversify, but that was more the possibility than the reality at the time,” he said.

“Fifteen years later from that quite narrow tight niche, this place is now world class. It is as good as you get - it is in the big leagues of the insurance business. If you want to have a career in this business this is where you want to be.

He added: “I would say that there is some sense of decline here, let’s face that. In the last decade, we certainly had a lot of responses to events, but yet overall new company formations are down, as is employment activity, in addition to downsizing, expense control and consolidation.

“But I am an optimist, and a Bermudian, and believe there are a lot of reasons to look up.”

The two day conference brought together top industry experts from Bermuda, the United States and Europe to discuss the state of the Market in Bermuda and globally.

Other industry leaders included XL Capital’s Mike McGavick, Alterra Capital’s Marty Becker, Ironshore’s Kevin Kelley, Endurance Specialty’s David Cash, Argo Group’s Mark Watson, Validus Re’s Conan Ward, Hiscox Bermuda’s Charles Dupplin and Torus Insurance’s Clive Tobin.

Top regulators included Terri Vaughan, CEO of the US National Association of Insurance Commissioners, and Jeremy Cox, CEO of the Bermuda Monetary Authority.

Industry leaders and Bermuda insurance stalwarts Don Kramer, the founder of Ariel Re, Michael Butt, Chairman of Axis Capital, and David Ezekiel of Marsh’s Global Captive Solutions Practice will also appear on the panels.

Also on the list is the President of the Property Casualty Insurance Association of America David Sampson.

Panel discussions focused on systemic risk, the implications of Solvency II, catastrophe modeling, capital market performance and cat bonds.

Veterans join AXIS board

Thomas C. Ramey and Wilhelm Zeller have joined the Board of Directors of AXIS Capital Holdings Limited as Class II Directors.

AXIS Capital Chairman Michael Butt commented: “Both individuals bring a wealth of experience through their distinguished careers in the international property and casualty insurance and reinsurance marketplace, and

they join an exceptionally talented board comprised of some of the most veteran business leaders today.

“AXIS Capital will benefit enormously from the experience of our new board members as leaders in our sector while we continue to strengthen our leading global specialty insurance and reinsurance platform. We look forward to their contributions as members of AXIS Capital’s Board of Directors.”

Mr. Ramey was Chairman and President of Liberty International, a wholly owned subsidiary of Liberty Mutual Group, from 1997 to 2009. Additionally, Mr. Ramey served in the post of Executive Vice President of Liberty Mutual Group from 1995 through 2009.

Prior to joining Liberty, he was President and CEO of American International Healthcare, a subsidiary of AIG, and founder and President of an international healthcare trading company.

Mr. Ramey is currently a Trustee of the Brookings Institution and a Director of The Warranty Group, the International Insurance Society and the Coalition of Service Industries. He also serves as a member of the Chongqing Mayor’s International Economic Advisory Council and Chairman of the International Fund for Animal Welfare. He holds a Masters degree from Tulane University.

Mr. Zeller was Chairman of the Executive Board of Hannover Re from 1996 through his retirement from the company on June 30, 2009.

Prior to joining Hannover Re, Mr. Zeller was a member of the Executive Board of Cologne Re from 1977 through 1995 and, in 1995, a member of the Executive Council of General Re Corporation.

From 1970 through 1977, Mr. Zeller served as the Head of the Casualty Department and International Department Non-Life at Zurich Insurance Company. He holds a Bachelor’s degree in Business Administration, majoring in Insurance, from the University of Applied Sciences in Cologne, Germany.

Brian DuperreaultCEOMarsh & McLennan

Michael ButtChairmanAXIS Capital

The Official Journal of The Bermuda Insurance Industry

12

2010

AngeloGuagliano, President and Chief

Executive Officer

of Alterra Insurance

Limited, an operating

subsidiary of Alterra

Capital Holdings Limited,

has retired. He continues

to serve Alterra

Insurance in a consultative capacity. Alterra

Capital Holdings Limited was formed on May

12, 2010 by the merger of Max Capital Group

Ltd. and Harbor Point Limited.

TomHulsthas been appointed as Chief Executive Officer of Ariel Reinsurance Ltd. He will report to George Rivaz, Chairman of Ariel Reinsurance and Chief Executive Officer of Ariel Holdings. Mr. Hulst has been with the company since shortly after its formation in December 2005, serving initially as Senior Vice President and, since mid 2008, as President. He has 20 years of industry experience in a variety of underwriting and management positions.

Endurance Specialty

Holdings Ltd. has

appointed ThomasAsquino as Chief

Underwriting Officer,

Property and Casualty,

of Endurance Worldwide

Reinsurance. He has

held various reinsurance

management positions with responsibility

for property and casualty underwriting

operations over the past 30 years, most

recently serving as Chief Property Officer,

Endurance Worldwide Reinsurance. Mr.

Asquino joined Endurance in May of 2003 in

the Treaty Property Department of Endurance

Reinsurance Corporation of America and

was appointed Chief Property Officer for

Endurance Worldwide Reinsurance in

February 2007. 

MarkByrne has stepped down as

Chairman of the Board of Directors of

Flagstone Reinsurance Holdings, S.A., while

continuing to serve as a non-executive

member of the Board of Directors of the

Company. David Brown, who has served as

Flagstone’s Chief Executive Officer since the

company’s inception in 2005, and all other

members of the senior management team,

continue in their current roles. Daniel James,

a Director of the Flagstone Board since its inception, will succeed Mr. Byrne as Chairman. Mr. James is a Founding Partner and Head of North America of Trilantic Capital Partners, a private equity firm.

CostasMiranthis has

been named President

and Chief Operating

Officer of PartnerRe Ltd.

He will succeed PatrickThieleas Chief Executive

Officer of the company,

effective January 1, 2011.

Mr. Thiele, President and

Chief Executive Officer of PartnerRe Ltd., has

decided to retire, effective December 31, 2010.

He will also step down from the company’s

Board of Directors at that time. Mr. Thiele has

held the position of President and CEO since

December 1, 2000.

Mr. Miranthis is currently Chief Executive

Officer, PartnerRe Global, and is a member of

the PartnerRe Group Executive Committee.

Appointed to his current role in May 2008,

Mr. Miranthis is responsible for the executive

management of the company’s life operations,

all non-life reinsurance operations and support

functions outside the US.

Separately, following

his re-election as a

Director, Jean-Paul

Montupet has been

named as Chairman of

the Board of Directors

of PartnerRe Ltd.

He replaced John

Rollwagen, who was

also re-elected as a Director and remains

a member of the Board. Mr. Montupet

joined the PartnerRe Board in 2002 and has

served on the Nominating and Governance,

Risk and Finance, Human Resources and

Compensation Committees.

AllanC.Decleirhas been named Executive

Vice President and Chief Financial Officer

of Platinum Underwriters Holdings, Ltd. He

succeeded James A. Krantz, who will be

retiring from Platinum in August. Mr. Decleir

joined Platinum in 2003 and has served as

Senior Vice President and Chief Financial

Officer of Platinum’s wholly owned subsidiary,

Platinum Underwriters Bermuda, Ltd., since

2005. He previously served as Chief Financial

Officer of Stockton Reinsurance Limited.

RenaissanceRe

Holdings Ltd. has made

four appointments to its

Executive Committee:

RossA.Curtis, Senior

Vice President and Chief

Underwriting Officer of

European Operations;

AdityaK.Dutt, Senior

Vice President and head of RenaissanceRe

Ventures Ltd.; JonD.Paradine, Senior Vice

President and Chief Underwriting Officer of

Renaissance Reinsurance Ltd.; and MarkA.Wilcox, Senior Vice President and Chief

Accounting Officer. These appointments

increase the number of Executive Committee

members from seven to 11.

XL Capital Ltd

has appointed Irene

Esteves as Executive

Vice-President and

Chief Financial Officer.

She was previously

Chief Financial Officer

of US bank Regions

Financial Corporation.

With more than 20 years of experience in

financial, strategic mergers and acquisitions,

and investment risk management at US and

global companies, Ms. Esteves assumed her

CFO responsibilities from Simon Rich, XL’s

corporate controller, who had been serving as

interim CFO. Ms. Esteves reports to XL’s Chief

Executive Officer, Mike McGavick, and will

serve on XL’s Leadership Team.

Separately, Kay Smith

has been appointed

Senior Vice-President,

Property Underwriting

Manager of the

Property Department

of XL Insurance

(Bermuda) Ltd (XLIB).

She is responsible

for managing a team of five and the

underwriting activities on XLIB’s book

of General Property excess business

comprising large and complex multinational

companies. With approximately 25 years of

industry experience, Ms Smith has taken on

progressively senior roles.

Market Moves

Jean-Paul MontupetChairmanPartner Re Ltd.

Ross CurtisSVP & CUORenaissanceRe

Thomas AsquinoCUOEndurance Re

Kay SmithSenior Vice PresidentXL Insurance

Irene EstevesEVP & CFO XL Capital Ltd

Costas Miranthis President & CEOPartnerRe Ltd.

Angelo GuaglianoPresident and CEOAlterra Insurance

13

The Official Journal of The Bermuda Insurance Industry 2010

Bermuda ShortsAlliedWorldAssuranceCompany

Holdings,Ltd has received approval from Lloyd’s of London to organize the new Syndicate 2232. The active underwriter will be Darren Powell, currently Senior Vice President and Manager of International Property at Allied World Assurance Company (Reinsurance) Limited in London. The syndicate will offer international property, general casualty, professional lines and international treaty, targeted at Latin America and Asian countries. Separately, Allied World has joined forces with red24, an independent, global security consultancy firm. As part of Allied World’s new ForceField Kidnap & Ransom/Extortion coverage, red24 will offer policyholders a broad range of proactive intelligence and security services, including web-based travel security information with daily news briefs sent each business day. Allied World has also introduced its new ForceField management liability product suite. ForceField offers six distinct coverage components with the option to purchase separate stand-alone products or a complete insurance package. ForceField’s coverage elements include directors’ and officers’ liability, employment practices liability, fiduciary liability, employed lawyers’ coverage, crime coverage, and kidnap and ransom/extortion coverage. These package products are available for private companies and not-for-profit organisations. For both new products, worldwide coverage of up to $25 million in limits is available for each individual coverage section. Actual coverage will be subject to the policy as issued.

AlterraCapitalHoldingsLimitedhas closed a merger of equals between Max Capital Group Ltd. and Harbor Point Limited to form Alterra. Holders of Harbor Point common shares received a fixed exchange ratio of 3.7769 Max common shares for each Harbor Point common share. The Alterra Board of Directors has also declared a special cash dividend of $2.50 per share to all shareholders of Alterra, worth about $300 million in total. Alterra has commenced the processes necessary to change the names of its subsidiaries to include “Alterra”. Until those processes are completed, operating subsidiaries continue to do business under their existing Max or Harbor Point names, as applicable.

TheBermudaMonetaryAuthority(BMA) has launched a pilot program to assess its procedures for reviewing insurers’ and reinsurers’ internal capital models. The Authority has selected two unidentified Bermuda Class 4 insurers to participate in the program and said it expects to test its assessment process for the rest of this year. A formal implementation date has not been set. Bermuda revised its insurance supervisory framework in 2008 and introduced its risk-based capital model program, known as the Bermuda Solvency Capital Requirement (BSCR). The BMA now intends to allow insurers to apply to the BMA to use their internal capital models instead of the BSCR when insurers can establish that their own capital models better reflect company characteristics. The BMA said the framework is an “important milestone” as the regulatory agency attempts to achieve equivalence with Solvency II rules that are to be implemented in Europe at the end of 2012.

Chartis(formerly AIG) has closed a $435 million hurricane and earthquake catastrophe bond. Bermuda-based Lodestone Re Ltd. is a special purpose vehicle set up for the purpose of issuing insurance-linked securities to provide Chartis’s US National Union Fire Insurance subsidiary with a source of reinsurance against both US windstorms and earthquakes. The three-year bond is split into two tranches of risk: $175 million for the Class A notes and $250 million for the Class B notes due May 17, 2013. The Bermuda Stock Exchange has approved the listing of Lodestone Re’s Principal-at-Risk Variable Rate Programme and the Class A and Class B notes.

GerovaFinancialGroup,Ltd. has established new headquarters for its insurance operations in Cumberland House in Hamilton. The new offices are the global headquarters for Gerova Holdings, Ltd. and its insurance subsidiaries. Gerova is an international reinsurance company, with operating insurance subsidiaries in Bermuda, Barbados, and Ireland.

LongBayRe has been formed in Bermuda as a Class 3 reinsurer for the sole purpose of providing fully collateralized reinsurance cover for a select portion of the catastrophe risk portfolio of certain members of the Catlin Group. Long Bay Re will be managed by Horseshoe Management, an insurance management service provider that offers full back office functions for insurers and reinsurers setting up in Bermuda.

Long Bay Re has announced its intention to float on the Alternative Investment Market (AIM), a sub-market of the London Stock Exchange.

MontpelierReHoldingsLtd. has been ranked the number one mid-cap company on Forbes’ 2010 list of the “100 Most Trustworthy Companies”. Montpelier Re was one of just three companies, as well as the largest company, to receive a perfect score from Audit Integrity, the independent financial analytics company that compiles the list.

Torus has acquired Glacier Group subsidiary Glacier Insurance. Torus will retain the underwriting and operational staff of Glacier as well as the firm’s offices in Lichtenstein, Zurich, Cologne and London. Richard Etridge, Chief Executive of Glacier Insurance, will join the Torus management team, becoming chief operating officer for continental Europe as well as global head of aviation.

CAPITALNEWS

AssuredGuarantyLtd.has repurchased 707,350 common shares of its common stock at an average price of $14.74 per share. This completes the company’s two million share repurchase program authorized in November 2007.

The Board of Directors of FlagstoneReinsuranceHoldings,S.A., has approved the potential further repurchase of company stock. Flagstone has successfully re-purchased over five million shares under its existing re-purchase program. Management has been authorized to purchase up to an additional $50 million in shares. The repurchase program permits Flagstone to buy back shares from time to time in open market and private transactions in accordance with applicable federal securities laws.

IronshoreInc. has completed a private offering of $250 million of 8.5 percent senior notes due 2020. The notes were issued by Ironshore Holdings (US) Inc., a wholly owned subsidiary of Ironshore, and are fully and unconditionally guaranteed by Ironshore. The proceeds from the debt will be used to continue to fuel the company’s growth and further develop its specialty insurance platforms.

Continued on page 15

The Official Journal of The Bermuda Insurance Industry

14

2010

Immigration on how to utilize the benefits of that MOU. Finally, our corporate service providers utilize Canada’s highly educated workforce and institutions.”

“In some cases, our government has worked directly with provincial authorities to truly deepen this relationship further. For instance, in January of last year, Nova Scotia Premier Rodney J. MacDonald visited Bermuda in order to sign a Memorandum of Understanding (MOU) to formalize a partnership between the Governments of Nova Scotia and Bermuda. That MOU paved the way to forge new and mutually-beneficial opportunities, particularly in the areas of tourism, financial services and enhanced transportation links.”

“Currently, there are 1,145 entities with Canadian interest, and this number is expected to grow exponentially. Indeed, at the annual Canadian Captive Conference in Toronto last week, which was attended by representatives

Tax accord benefits Canadian captives

Continued from page 1 of the Bermuda Monetary Authority, and a large number of local industry representatives, today’s signing was noted by many as a significant step forward both in enhancing business ties and investment opportunities between Bermuda and Canada.”

“Finally, Bermuda, in its capacity as a Vice Chair of the Steering Group of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes works closely with Canada, and we very much look forward to welcoming delegates from Canada to Bermuda next year when we host the 2011 Global Forum.”

Leila Madeiros, Senior Vice President & Corporate Secretary of the Association of Bermuda Insurers and Reinsurers (ABIR) noted: “Canada and Bermuda have had a long standing insurance connection that spans over many decades and we see the signing of this TIEA as a natural development of this connection.

“Both countries have benefited from an ongoing relationship that evolved from the early days when prominent Canadian life companies provided life policies to Bermudian residents

through Non-Resident Insurance Undertakings (NRIUs) to captives to the provision of reinsurance by Bermuda reinsurers to Canadian stakeholders.”

“We believe that the ongoing work and pursuit of the Bermuda Government and in particular the Ministry of Finance to continue to secure additional TIEAs to its list of 22, demonstrates its commitment to exceed OECD minimum standards with regard to transparency and cooperation on international tax law enforcement.”

Bermuda has more than 20 signed agreements with provisions for the exchange of information for tax purposes.  Bermuda has signed TIEAs with the United States, Canada, Australia, United Kingdom, New Zealand, the Nordic countries (Sweden, Norway, Finland, Denmark, Iceland, Greenland, Faroe Islands), Netherlands, Germany, Ireland, Netherlands Antilles, France, Mexico, Aruba, Japan, and Portugal. Further, Bermuda has a double taxation agreement with the Kingdom of Bahrain.

The latest round of negotiations has been concluded to sign a pact with Brazil.

A Bermudian insurance regulator gave Canadian businesses a heads-up on the new tax agreement between Bermuda and Canada that will make it even easier than in the past for Canadian firms to form Bermuda captives.

Director, Insurance Licensing & Authorization at the Bermuda Monetary Authority, Shelby Weldon, was addressing the 6th Annual Canadian Captives & Corporate Insurance Strategies Summit at the Metropolitan Hotel in Toronto.

Delegates that included a number of risk managers and those seeking to organize captive formation heard Mr. Weldon point out that the Island had signed more than a score of Tax Information Exchange Agreements (TIEAs) and was negotiating with two other European countries.

The model agreement on exchange of information on tax matters was developed by the OECD (the Organization for Economic Co-operation and Development) Global Forum Working Group on Effective Exchange of Information

The purpose of the agreement is to promote international co-operation in tax matters through exchange of information. It grew out of the work undertaken by the OECD to address harmful tax practices. The lack of effective exchange of information is one of the key criteria the OECD uses in determining harmful tax practices.

The signing of this TIEA is deemed to confer a significant benefit to Bermuda in its endeavour to attract more Canadian captive business. The dividends of foreign affiliates that are resident in Bermuda that are paid to their Canadian parent companies out of the active business income earned in Bermuda will be exempt from relevant Canadian taxation.

There was much discussion of this significant development in the days leading up to, and during this week’s Canadian captive meeting.

The two day event attracted a surprising number of Bermuda representatives. Exhibit booths came from a handful of captive

domiciles including the Bermuda Market booth from the Bermuda Insurance Development Council (IDC) and one from Business Bermuda (formerly BIBA), representing Bermuda professionals who provide services to the Island’s international business markets.

There were more than a dozen Bermuda-based representatives registered, including lawyers, brokers, captive managers and insurance managers.

There were also representatives from the financial services community from other captive domiciles.

Captive audience in Canada

Pictured in Toronto are a few of the Bermuda representatives, including Bermuda Monetary Authority Director, Insurance Licensing & Authorization Shelby Weldon (front left), Attride-Stirling & Woloniecki Law Partner Neil Horner, Senior Vice President of R&Q Quest Management Services Limited and Bermuda captive manager Nicholas Frost (back left), and Bruce Thorne of Corporate Protection Group.

15

The Official Journal of The Bermuda Insurance Industry 2010

2010THE BERMUDA INSURANCE MARKET CONFERENCE SCHEDULE

BermudaEvents

AsociaciónLatinoamericanadeAdministradores Oct.11-13de Riesgos y Seguros (ALARYS)Fairmont Southampton Hotel, Bermuda, Southampton, Bermudawww.bermuda-insurance.org

ReinsuranceContractWordingsandDisputes Oct.6-7Falconbury in association with Dewey & LeBoeuf LLPFairmont Hamilton Princess Hotelhttp://www.falconbury.co.uk

Sedgwick’sAnnualHotTopicsSeminar Oct.13Bermuda Underwater Exploration Institute (BUEI)Pembroke, BermudaRebecca.Enchelmayer@sdma.com

Bermuda(Re)insuranceConference2010 Nov.9-10Standard & Poor’s and PricewaterhouseCoopersFairmont Hamilton PrincessPembroke, BermudaErica.martin@bm.pwc.com

GoldmanSachsAssetManagement’s7thAnnualConferenceforBermudaReinsurers Nov.16Hamilton, Bermudacharles.fuller@gs.com

OverseasEvents

VermontCaptiveInsuranceAssociation(VCIA) August10-12Sheraton Hotel & Conference Center Burlington, Vermonthttp://www.vcia.com

LesRendez-VousDeSeptembre Sept.11-16Sporting d´Hiver, Place du CasinoMonte Carlohttp://www.rvs-monte-carlo.com/

RIMSCANADACONFERENCE Sept.26-29Shaw Conference CenterEdmonton, Alberta, Canadahttp://gatewaytoexcellence.com/

AmericanSocietyforHealthcareRiskManagement(ASHRM) Oct.13-16Tampa Convention CenterTampa, Fl.www.ashrm.org

PropertyCasualtyInsurersAssociationofAmerica(PCI) October24-27

TheBroadmoor

ColoradoSprings,COwww.pciaa.net

20thWorldCaptiveForum(WCF) Nov8-10

HyattRegencyScottsdaleatGaineyRanch

Scottsdale,Arizonawww.worldcaptiveforum.com

Continued from page 13

LancashireHoldingsLimited and its wholly owned subsidiary Lancashire Insurance Company Limited have entered into a $200 million bilateral two-year letter of credit facility with Lloyds TSB Bank PLC. The letters of credit will be used to support obligations under reinsurance liabilities of Lancashire Insurance Company Limited.

The Board of Directors of PlatinumUnderwritersHoldings,Ltd.has approved an increase in the authorized amount of Platinum’s existing share repurchase program to a total of up to $250 million of its common shares. This represents an increase of about $47 million from the approximately $203 million remaining in the program.

The Board of Directors of RenaissanceReHoldingsLtd. has approved an increase in RenaissanceRe’s stock repurchase program, bringing the total current authorization to an aggregate of $500 million. Under this program, RenaissanceRe may repurchase shares of its common stock in the open market based on, among other things, its ongoing capital requirements and expected cash flows, and the market price of its common shares.

Bermuda Shorts

Berm da Captive

Conference

Fairmont Southampton Resort, Bermuda

www.bermudacaptive.bm

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