The Bermuda risk transfer market has been built on various classes of startup insurers and reinsurers forming on Bermuda in response to specific events and changes in market conditions.
In a panel discussion titled “A new class enters the fray”, veterans and (relative) newcomers explained what’s different this time. The webinar was hosted by Intelligent Insurer, a sister publication of Bermuda:Re+ILS.
Ready and able to offer their observations were Brad Adderley, office managing partner & head of corporate at Appleby (Bermuda); Adam Champion, EVP capital markets and reinsurance, at Ed Broking Capital Advisors; Prashanth Gangu, COO and president of insurance & services at SiriusPoint; Peter Horrobin, founder and CEO at Banyan Risk; and Peta White, president of Vantage Risk.
They explored the way this new class had arrived; how many of its entities are writing across more speciality and niche lines than previously startups; how managing general agents (MGA) are playing a role this time; how insurance-linked securities (ILS) is making re/insurance appeal to talent that would normally seek careers in investment banking; how hybrid working is an opportunity to achieve diversity, equality and inclusion; and how brokers are shaping the market.
Horses for courses
Adderley, who has worked at offshore law firm Appleby in Bermuda for more than 25 years, contrasted the new class with those of 2001 and 2007.
In 2001, about seven startups raised $1.2–1.6 billion within seven weeks, he noted. They were all general business insurers, with a similar amount of capital and number of staff, and they had no ILS platform. The emergence of the latest class, on the other hand, took two years, probably because they have taken longer to raise capital, he said.
Another difference is that most of the 2001 class didn’t have a Lloyd’s platform from the outset, while some of the new class—such as speciality re/insurer IQUW—do.
What’s striking, however, is that they are “focusing on different areas and trying to work out what the next great avenue will be and that makes it more interesting”. Adderley added: “It’s now horses for courses, whereas before it was everyone on the same course.”
What’s new, property cat?
Formerly an ILS portfolio manager at Sussex Capital, Champion joined Ed Broking. Ardonagh Group’s acquisition of the insurance operations of BGC Partners late in 2021 comprised the Ed and Besso Broking groups. Ardonagh is set to launch Inver Reinsurance Brokers, with the ambition to become a top five global player.
“As part of that acquisition, there’s a push for us to expand beyond insurance broking,” said Champion, who is tasked with launching Inver Re’s capital markets advisory team.
Having worked in Bermuda for the last 11 years, Champion has a view on what’s different about the new class.
“Previous classes were part of a heavy push on the property cat side, which is where Bermuda made its reputation and has had a long history of successfully leading and driving that area,” he said. Now, there is a broader and more balanced focus, as more lines of business are being considered.
“From an ILS perspective, it’s very much considered to be almost a requirement now to have some access to third party capital, where certainly in the past that wasn’t the case,” Champion explained.
“On the flipside of that, it is more difficult at the moment to raise capital; so while it’s considered a requirement, it’s also slowing the process down. That’s based off the performance of the industry over the last couple of years, as well as a difficult property cat run that we’ve had since 2017.”
A Sirius business
Gangu referred to his own qualification to compare classes, working at “a startup with a 75-year history”, since SiriusPoint is the combination resulting from Third Point Reinsurance’s purchase early in 2021 of Sirius International Insurance Group. For him, the formation of MGAs on Bermuda is a key difference to previous waves of startups.
“The classic insurance/reinsurance model might be outdated and we think of the MGA model as being the future, which reflects a shift towards seeing how the economics can be captured more on the primary side rather than on reinsurance side,” Gangu said.
“The big play in this market, from a structural perspective, is more long tail and specialty lines, and in these lines a big part of the challenge is that, by the time you get through the different layers of distribution and the primary insurance aspect of the business, and get to reinsurance, there’s not a lot left on the table in terms of profit,” he added.
Although the new class is “technology-driven”, no-one has yet been able to innovate in how to deal with ratings agencies and regulators, or in risk management. The beauty of an MGA model, then, is that it “lets you focus more on the customer”.
“All the innovation is at the front end and I’m trying to modularise the value chain, focusing on being essentially a platform and letting others—primarily on the MGA model—prosper in terms of creating solutions,” Gangu said.
The new class is not thinking about moving on as soon as the market softens, he added, and is instead set up to have a greater chance of being “sustainable in large numbers” than previous classes.
SiriusPoint has a minority stake in Banyan Risk, the newly established Bermuda-regulated MGA which, Gangu said, now has “30-odd partnerships on its books”.
Banyan, which Horrobin founded with Tim Usher-Jones, creates bespoke D&O insurance risk solutions for life sciences, global initial public offerings (IPOs), the technology sector, and special purpose acquisition companies. Most recently at Ascot Bermuda, Horrobin previously worked with Usher-Jones at Chubb.
“The emergence of MGAs on the Island is pretty fascinating from a competitive advantage standpoint,” Horrobin said, adding that his generation (he’s 38) is interested in working for the smaller, new startups, “where you’re not held back on the bureaucracy” that is typical of large firms.
“From a strategic standpoint, and how we’re able to operate against Fortune 200-type companies, it simply comes down to the fact that we’re able to focus on very niche areas of the market and bring on individuals who want to be with a smaller scale company,” he explained.
“It’s a dramatic change, and I wouldn’t say it is necessarily just because of COVID-19, but I do find younger people are willing to take more of a risk with their careers these days than was the case historically.”
Vantage, which White joined after 14 years with Markel, is a tech-enabled specialty re/insurer that, she said, was “quick to raise capital” (from Carlyle and Hellman & Freidman).
Vantage is led by two industry veterans: Dinos Iordanou as non-executive chairman, and Greg Hendrick as CEO. They have each had more than 30 years in the industry: Iordanou was with Verisk and Arch Capital Group, while Hendrick’s career has included AIG Risk Management, Winterthur Re, Mid Ocean Re, XL, XL Catlin and AXA XL.
White also highlighted Christopher McKeown, CEO of reinsurance, ILS, and innovation.
“Our value-add proposition is a focus on technology and data and analytics, so not just technology in terms of bringing efficiencies, but bringing thoughtful insight into data and analytics and harnessing that to bring more insights to our own exposure and risk, but also for those of the client,” she said.
An example of Vantage’s technology credentials is astrophysicist Steve Smith as the company’s head of research & development. “His immediate focus is on climate change, and helping us take the science and put it into practice when pricing and underwriting cat risk,” White said.
What makes the new class different from previous classes is that it was borne of a new dynamic that led to the current hardening market.
“This isn’t a startup class post a single event, such as the World Trade Center or Hurricane Andrew, but it’s after many years of losses. It’s a number of years and a series of events across various lines,” she said.
“It certainly feels as though this is going to be a sustainable, longer term hard market.”
Vantage’s investors are “patient and long-term partners”, she said, which was demonstrated by their recent contribution of $200 million on top of their initial $1 billion of equity capital.
The patience of investors reflects the patience of the new startups, which is illustrated by their approach to hiring, Champion said. “We’re not seeing anyone coming in and aggressively saying: ‘This is a hardened market and therefore we’re coming into this particular space in a massive way and we’re going to put all our chips on the table in this one area’.”
That means a differentiator for the new class is not to hire talent in-house, in order to move swiftly, but to wait for the right new people. That’s because, unlike the classes of 2001 and 2007, there is no intention to be “quick to get acquired and quick to go away”, Champion said. And using technological advances in data analytics will give the new class the ability to manage their capital more efficiently, which will drive their sustainability, he added.
Horrobin said the new class understands that incentives are extremely important to attracting talent. “We all know that ‘MGA’ was historically a dirty word, largely because the incentive structure was based on top-line underwriting.
“At a lot of the large institutions, most of the employees don’t have long-term incentivisation and yet they write long-term, long-tail business. That has always been extremely perplexing to me to say the least, but I do think that for a lot of the new markets we’re seeing here, and why they’ll have longer staying power, is they’re not incentivised on the top line; it’s more on a long-term profitability.”
Banyan is investing heavily in technology to help keep its headcount low, even though it “isn’t looking for an exit plan in two to three years”, Horrobin said. “Some new markets I’m seeing are hiring substantial numbers of people in very specific areas which, right now, might be great, and there are certain markets in Bermuda with seven or eight open positions.
“We all acknowledge the hard market won’t last forever. And we’re keen to make sure that we have the appropriate headcount through the cycle so we’re never forced to top-line underwrite just to pay the bills.”
Horrobin said the better work-life balance in the insurance sector was being noticed by investment bankers, and Champion said the new class offered a bridge between these two types of talent.
“When you bring ILS into the fold, you’re now seeing this blend between banking and finance and insurance, which is exciting for a lot of people,” he said, adding that insurtech has attracted technology experts and data scientists, while the nimbleness of MGAs is also attractive for entrepreneurs.
Freedom of speech
Regarding SiriusPoint’s large pool of existing talent, Gangu agreed there is an increasing desire to move away from a corporate mindset and towards attracting talent to an entrepreneurial culture.
“If you feel like you’re your own master in a small shop that can move fast, can be more controlled, and can be better at applying technology, there’s more value to be had,” he said.
SiriusPoint’s chief technology officer Darryl Siry was the main underwriter at Tesla “during time of the Roadster”, Gangu said, adding that “insurtech is now mainstream”.
The pandemic presented challenges to hiring but working remotely has created new opportunities, White said. Vantage’s strategy on attracting talent—it has 125 people across the US and 35 in Bermuda—has been “very rewarding”, she said.
“We started out in a pandemic—no other startup classes have done that, so we’ve had to be creative, certainly on how to bring people together and build that culture virtually in the US, which has meant we can hire the best talent no matter where they are.”
The company’s commitment to diversity, equity and inclusion has meant its Bermuda staff is “60 percent female and 40 percent non-white”, and this diversity “cascades through the business at all levels”.
“The new startups are a lot more thoughtful about who they’re hiring and where they’re focusing the initial gunpowder,” Adderley agreed.
There is, however, a shortage of talent in Bermuda, he added.
“Less so on the P&C and ILS sides and more on the life side because Bermuda isn’t traditionally a life reinsurer,” he said. “There’s been a huge influx of life insurers in Bermuda and you’re seeing eight to 10 new billion-dollar life reinsurers being formed each year.
“Getting the resident or independent life reinsurance experience of the board is very important when a life reinsurer is backed by a private equity firm, which is basically an investment house with very little life experience and doing asset gathering. It is starting to improve though,” he said.
Adderley highlighted an “interesting and yet not often spoken about” feature of the market’s growth: that there has been a large influx of brokers who have been bringing in new business.
“When the brokers come and the MGAs come, we have access to new business and new talent which previously we didn’t have, which will help diversify the business and grow the marketplace. That gets me equally as excited as having more capital around.”
On his expectations of the next five years, Adderley said he wondered whether the new class would “take the traditional route” and within a few years consider an IPO.
“Some of the startups have been vocal about having ‘10-year money’, so they’ll maybe go for an IPO later than normal. I wonder then if we’ll see fewer IPOs in the future.”
Champion highlighted the growing trend of consolidation among brokers. “Obviously we’re a part of that,” he said, adding that making acquisitions was “very much part of the DNA” of the Ardonagh Group. A lot of private equity funding has been “flowing into the broker space”, but so too has investment from sovereign wealth funds.
“That’s obviously very exciting for us and it certainly gives us a long runway for a very aggressive growth plan,” he said.
“You’ll see a very aggressive middle tier in the global broking space, continued consolidation, mergers and acquisitions, and that will produce the competition we need to support all these carriers, these new startups and the existing carriers that have been around for a long time.”
More consolidation of brokers, rather than of carriers, will be a differentiator between the two types of business, he added.
Gangu said SiriusPoint would continue to streamline its business. “We have plenty of capital—$3.2 billion—and even if we double our premium this year, we still don’t have to raise more capital. It’s good to be on a capital cushion, especially as we reduce our hedge fund exposure and property cat exposure.
“It’s an interesting model that we’re pursuing of trying to be a platform company for MGAs and we are super excited about the future.”