Johnny Barnes, Bermuda’s most celebrated son, spends five hours each morning, rain or shine, standing at a roundabout waving at the morning traffic and telling everyone “I love you”

“Bermuda is another world…” - so starts Hubert Smith’s Bermudan calypso that greets daily arrivals at Bermuda’s airport. Just how much Bermuda is “another world” is perhaps not fully appreciated by the transient business or holidaying visitor. It is sometimes easy to forget that Bermuda, with around 60,000 inhabitants, is the size of a small town – about a third the size of Bournemouth in the UK, although obviously with much better beaches and a bigger share of the world captive insurance market.

This is the place where a prisoner once made a daring escape from prison not, like in a Bond film, by helicopter or speed boat, but on a local bus. Presumably, he would have escaped a lot earlier had he not needed to save the correct fare.

Bermuda is a place where the letters page of the local papers are an unexpected daily delight. For example, after the recent visit of Hurricane Florence, the letter page of one newspaper treated us to a poem in praise of BELCO workers, the UK equivalent would be an ode to the local electricity company, and so, at last, filling the much overlooked gap for Utilities verse in modern literature.

It is hard not to genuinely like a place where the immigration and customs officers routinely finish their scrutiny of your travel documents not with some snide or cynical remark but the heart warming “welcome back home”. Or where locals get on buses with a cheery “good morning everybody” much to the shock and embarrassment of those travellers hardened by their daily New York or London commutes where such unprovoked friendliness is a sure prelude to being murdered or even worse, for the English at least, having to making polite patronising conversation with a complete stranger.

This sort of behaviour is hardly surprising when Bermuda’s most celebrated son, octogenarian Johnny Barnes, spends five hours each morning, rain or shine, standing at a roundabout waving at the morning traffic and telling everyone “I love you.” In many countries such behaviour would lead to him being locked up, but not in Bermuda where he is something of a national treasure complete with a statue in his honour.

Businss in Bermuda:
And then smack bang in the middle of this idyll is one of the world’s leading insurance and reinsurance centres. Everyone knows about the extraordinary number and size of new insurance and reinsurance companies that have been established in Bermuda following September 11th and the Hurricanes of 2005. Remarkably, there is no single source for these ventures. There are Bermuda companies of major existing market players (for example, Hiscox, Chubb and Amlin) and companies supported by hedge funds ( for example, Flagstone Re, New Castle Re and Nephila Capital) and ones that are inspired and managed by leading market individuals (for example, Don Kramer at Ariel Re). There is no sign of this momentum stopping with recent press reports of Bermuda insurance veteran Bob Clements planning a new $1 billion reinsurer called Ironsure Limited. A spin-off has been the number of so called “sidecars” that have also been set up with the main purpose of providing reinsurance cover to specific Bermuda reinsurance companies. At present, these include Rockridge Reinsurance (set up for Montpelier Re), Cyrus Re (XL Capital), Flatiron Re (Arch Re), Blue Ocean Re (Montpelier), Helicon Re (Olympus Re), Petrel Re (Validus Re), Starbound Re (Renaissance Re) and Bay Point Re (Harbour Point Re).

Such an influx of capital and personnel is bound to have a significant impact on such a small place. An obvious result is the number of new buildings going up in the business district of Hamilton. Eight new office and residential developments can currently be seen being built in and around Hamilton. While the new buildings are tiny compared to those found in New York or Hong Kong, this still represents a significant amount of new activity. Bermuda is also an extremely expensive place to live.

There are restrictions on the ability of non-Bermudans to own property, but the price of an average house for Bermudans is, astonishingly, over $1 million - much to the disquiet of ordinary hard working Bermudans. Rents are also high, in part fuelled by the generous housing allowances which are provided by a large number of the insurance and reinsurance companies for overseas staff. Rents in excess of $5,000 per month are not unusual. It says something that pretty much the cheapest and best value activity to be had in Bermuda is issuing a writ – an absolute bargain at $50 a go with the added benefit that Bermuda still retains the nineteenth century terminology complete with a quaint if rather anachronistic reference to “ELIZABETH II, by the grace of God of the United Kingdom of Great Britain and Northern Ireland and of our other Realms and Territories Queen, Head of the Commonwealth, Defender of the Faith.”

It is not only property and motor cars that are restricted for non-Bermudans, there is also a fairly stringent work permit policy that regulates their ability to work in Bermuda. Amongst other things, this provides a maximum work permit term of six years although there are various exceptions to this. Something of the oddity of life and work in Bermuda is shown from the list of jobs that the Bermuda Government regards as being in short supply and so subject to more lenient requirements. These include actuaries, butchers, chartered accountants and chefs. So sous-chefs who can turn their hand to stochastic modelling will always be in huge demand and are unlikely to ever have any problems working in Bermuda.

Boom to run-off – to bust?:
But lurking in the background are reminders of the dangers and risks in the insurance and reinsurance industry and the relatively narrow line between success and failure. The 2005 Hurricanes may well have been the impetus for the new wave of reinsurance company start-ups, but they also left in their destructive wake problems for Rosemont Re, Alea and Quanta who have all gone into run-off and PX RE who has ceased underwriting while a decision is taken about its future. The old sweats who have been in Bermuda for twenty years or more are constantly reminding us that they have seen earlier, although different, cycles of boom to run-off and occasionally bust. In the 1970s and early 1980s a number of Bermuda captives wrote significant third party risks that invariably turned out badly with nearly all the captives involved going into run-off or, in the case of Mentor and Cambridge Re, into insolvent liquidation. A key and obvious factor for the financial health of many of the Bermuda reinsurers is the occurrence and frequency of natural catastrophes and in particular hurricanes hitting the United States.

Thankfully, so far 2006 is shaping up well with property catastrophe premiums at an all time high and with no significant hurricane losses although there is still a further two months remaining of this year’s season for underwriters to keep their collective fingers crossed. If there are no significant catastrophe losses this year and next year then that will obviously go a long way to redressing the major losses of the last two years and result in much happiness amongst the Bermuda market. Let us wait and see.

This Special item appeared in issue 109 of JTW News - October 2006

Author: Stephen Leonard - Attride-Stirling & Woloniecki