Bermudian companies falling behind Europe in risk-based capital thinking

Many Bermudian companies lack the technical sophistication of their European counterparts and have failed to embrace risk-based capital ideas in the same way as businesses in other territories have done.

This is the view of Raj Ahuja, a partner at actuarial consultant EMB, who says many London firms hold a competitive advantage over their Bermudian rivals because London has embraced its risk-based capital regime.

"Perception and reality are different. The perception is that Bermudian operations, whether the ‘class of 2001’ or ‘class of 2005’, are very technical businesses. In my opinion, a number are technical, but only in certain elements - underwriting," he told Insurance Day.

"When it comes to capital setting, Bermudians are not necessarily as sophisticated as the outside world is led to believe," Ahuja continued. "Those [companies] in London that we have seen embrace the capital regime have gained a competitive advantage."

He pointed out that Bermudians have already been exposed to risk-based capital regimes - there is around $1bn of Bermudian capital at Lloyd’s - but will now have to act with Solvency II likely to change the buying practices of European insurers.

"We are convinced that in continental Europe the attitude towards capital and buying reinsurance will change because of Solvency II, and this will affect the Bermudians selling reinsurance," he says.

"I think the buyers in continental Europe will become much more sophisticated about understanding their reinsurance needs: what they want, how much they want to buy, the form and structure of the cover and how much they will pay for it.

"This should provide a reasonable degree of challenge to Bermudians selling reinsurance, and is a challenge to everyone selling reinsurance to continental Europe," Ahuja said.

The island’s insurance regulator, the Bermudian Monetary Authority (BMA), is reported by a number of commentators to be formulating plans to introduce its own risk-based capital regime. Although it is reported that a period of consultation has already begun, the BMA had not confirmed this as Insurance Day went to press. 

This article appeared in Insurance Day in March 2007