Report: Bermuda’s ‘Back-Door’ Role
A Florida newspaper claims a Hamilton-based reinsurance firm allowed giant US insurer State Farm to continue doing business there even while the American company argued it had to pull out of Florida — and drop almost half a million customers — because it was being pushed to the brink of financial disaster by a state hit by so many storms.
The Bermuda-based conduit for State Farm’s “back-door insurance” in Florida, says the Sarasota “Herald-Tribune” in a major report in today’s edition, is Crow Lane-headquartered Renaissance Re and its subsidiary Da Vinci Re.
The “Herald-Tribune” has run a series of highly critical articles on Bermuda’s off-shore re/insurance sector in recent weeks — privately described as “hatchet jobs” by senior members of the Bermuda industry — including one which quoted an unnamed Florida insurance source as calling the local companies the “almost-pirates of the-almost Caribbean”.
” … DaVinci Reinsurance Ltd., an offshore company with no physical office or employees of its own (sells) policies to insurers to cover their storm losses,” says the “Herald-Tribune” today (December 5). “The virtual corporation was launched in 2001 by State Farm and a Bermuda reinsurer with which it has close ties. State Farm provided $200 million in seed capital. Its partner, RenaissanceRe Holdings Ltd., took on management and the recruitment of other investors. While it has little physical presence, DaVinci is now one of the state’s most important hurricane reinsurers. Contracts show DaVinci provided coverage last year to more than 50 Florida insurance carriers representing the owners of 3.7 million homes.
“Through DaVinci, State Farm quietly continues to collect money from thousands of former customers who were told their homes were too risky to insure … DaVinci emerged from the rubble of the World Trade Centre. Within weeks of the Sept. 11 terrorist attacks in 2001, it was created by State Farm and its Bermuda partner, RenaissanceRe, to capitalise on price increases that followed the disaster.
“State Farm’s original $200 million stake gave it a 40 percent share in DaVinci and a seat on the board of directors. RenRe provided 20 percent of the money and manages the venture. At the outset, DaVinci was a nominal reinsurer for Florida. It specialised in low-risk contracts with large US insurers such as Allstate and Zurich American. That changed after Hurricane Katrina in 2005.”
After that catastrophic storm, says the “Herald-Tribune”, hurricane risk became the cornerstone of DaVinci’s business. The company raised $375 million, including $25 million more from State Farm, and doubled its capacity to write reinsurance. Florida became the primary focus of its business. Together, Bermuda-based DaVinci and RenRe became the largest provider of hurricane coverage to Florida-based insurers.
Florida has among the highest insurance rates for homeowners and businesses in the United States. But the Association of Bermuda Insurers & Reinsurers has repeatedly pointed out the state requires coverage for fully 60 percent of all the wind risk in the entire US. And the 17 Bermuda reinsurers — who together have 37 percent of the world’s property and casualty reinsurance market — “have never been unable to pay Floridians’ claims for catastrophes.”
