Bermuda Financial Services Conference

1
Bermuda Financial Services Conference
Convergence in 2009 and Beyond Panel
Discussion Kathleen Faries, Tokio Millennium Re
Ltd. David Cash, Endurance Specialty Holdings
Ltd. Jonathan Kim, MontpelierRe Holdings
Ltd. The Harvard Club, New York City September
30, 2009
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30 Years of Bermuda Startups
1985-87
1993-94
2001-04
Class of 1993 Cat Ltd. Global Re IPC
Re Mid-Ocean Re Partner Re Renaissance
Re Tempest Re
Class of 2001 Arch Aspen AXIS AWAC
Endurance Montpelier Platinum
Class of 2005 Ariel Flagstone Harbor
Point Ironshore Lancashire
Cat Bonds Side Cars
Class of 1985 ACE XL
Change in Annual Real Net Written Premium
Property Catastrophe
Excess Casualty
Multiline Diversified
Convergence
Note Shaded areas denote hard market periods.
Real NWP is adjusted for inflation. Source A.M.
Best, Insurance Information Institute.
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The Impact of the Financial Crisis on Convergence

• Cat Bonds
• TRS Counterparty credit risk there is risk!
• Transparency on underlying assets
• Top Ups
• LIBOR verses Treasury
• Side Cars
• Better returns elsewhere for investors
• Hedge Funds
• Redemptions/Liquidity/De-leveraging
• Cat Funds performed but multi-strats forced to
  liquidate
• Investments dry up due to wait-and-see approach
• Cedants see much of this capacity pull out

4
New Cat Bond Issuances 2009 / Collateral
Management

5
Capital Raising Then and Now
5

• Post KRW Capital Raising
• In the aftermath of Katrina, Rita and Wilma
  Bermuda companies raised capital in a number of
  forms
• New Ventures Private Equity
• Common Equity
• Preferred Equity
• Senior Debt
• Side Cars Hedge Funds
• Rating Agencies subsequently allowed companies to
  use contingent capital structures Contingent
  Equity Forwards to further augment their capital
  structures.
• Key point is that the capital markets were very
  liquid and as a consequence many different forms
  of capital were used by companies.

• Post Wall Street Capital Raising
• Through the second half of 2008 and 2009 capital
  raising has been very limited and share buy
  backs almost non-existent.
• A limited number of catastrophe bonds and side
  cars were issued.
• Most companies have reduced their most capital
  intensive exposures catastrophe and looked to
  retained earnings to bolster their balance sheets
• Companies explored MA as a capital source
• Key point is that emerges is that re/insurers are
  less dependent on third party capital than in
  2006 and that companies will use catastrophe
  bonds and side cars only when they are cost
  effective.

6
The Future What Reinsurance Business Model
Emerges ?

• Decision Framework
• Line Size / Capacity
• Cycle Management
• Return on Equity

Decision Framework Line Size / Capacity Cycle
Management Return on Equity