Bermuda's (re)insurance market in 2012

Tim Faries, a partner and group team leader of the insurance division within the corporate and commercial department of Appleby, Bermuda, looks back at an eventful year for the island’s (re)insurance market.

As November 2012 drew to a close, catastrophe modelling firms were releasing their latest insured loss estimates from Hurricane Sandy, punctuating with an exclamation mark what has been a year of victories and challenges for the Bermuda market.

Cat modeller AIR Worldwide revised upward its loss estimate for Sandy to $16 - 22 billion, while Eqecat remained at $10 - 20 billion and RMS looked set to move north to the $20 - 25 billion range. Based on the insured loss estimate development of other major US storms such as Katrina and Andrew, further upward momentum in these estimates is likely in the coming weeks.

Sandy was the first major cat event in what has been a tranquil year for the worldwide catastrophe reinsurance marketplace; a marked, and welcome, contrast to 2011, which was a record year for cats. While it is still too early to tell how much of this loss will be borne by the traditional Bermuda cat re market, there is
much speculation on the impact the storm will have on nontraditional Insurance Linked Securities (ILS) products. $20 billion is a key trigger for Industry Loss Warranties (ILWs) and price volatility in cat bonds, with downward movement being the primary feature, has characterised the Swiss Re Global Cat Bond
Performance Price Return Index post-Sandy. Since the introduction of its Special Purpose Insurer (SPI) category in 2009, Bermuda has vaulted into a prominent position in the ILS business, and developments in this area will undoubtedly have an impact on the Bermuda market…

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